'Customer Verification Lapses' Upbit Faces FIU Disciplinary Hearing... New Business Suspension Expected

원본보기 아이콘

The Financial Intelligence Unit (FIU) of the Financial Services Commission is proceeding with disciplinary review procedures against Upbit, the country's leading virtual asset exchange. The FIU has notified Upbit of a disciplinary action that restricts new customers from transferring virtual assets outside the exchange for a certain period. It is also expected to impose fines amounting to several billion won.

According to the virtual asset industry on the 17th, the FIU pre-notified Dunamu, the operator of Upbit, of this disciplinary action ahead of the Upbit disciplinary review committee scheduled for the 21st.

During the FIU's business renewal review process, Upbit was found to have neglected its customer identification (KYC) obligations, resulting in over 500,000 to 600,000 cases of irregularities. Upbit officially announced that it had 8.9 million members as of October 2021, and it is speculated that the current total number of members has surpassed 15 million, the number of domestic stock investors. Since membership registration and customer verification are conducted non-face-to-face, the industry speculates that the number of irregular cases due to technical errors could reach hundreds of thousands.

This time, the FIU is reported to have conducted the inspection according to the three-year customer verification re-implementation cycle. It was the first formal inspection conducted last year since the initial inspection in 2021. Since the first inspection was relatively lenient, providing guidelines rather than strict enforcement, it is presumed that a large number of irregularities were detected this time.

Professor Hwang Seok-jin of Dongguk University's Graduate School of International Information Security said, "Considering previous disciplinary cases such as Hanbitco and Busan Paradise, important factors include customer due diligence (CDD) related stored documents and discrepancy issues," adding, "Unlike STR, CDD and related document storage can only be reviewed during specific inspections, so (in terms of importance) it is practically on a different level and was likely the main focus."

Some in the market predict that Upbit may face partial suspension of operations that restrict new customer transactions. Additionally, it is estimated that fines amounting to several billion won will be imposed. According to the Special Act on Reporting and Using Specified Financial Transaction Information (the "Special Act"), fines of up to 100 million won per case can be imposed for violations of customer identification obligations. A virtual asset industry official hinted, "There are rumors that the fine could exceed 5 billion won."

However, financial authorities are expected to handle the final disciplinary level cautiously. This is because Hanbitco, a virtual asset exchange, was fined 2 billion won by the FIU for violating customer identification obligations for 197 customers but recently received a court ruling canceling the fine. Hyun Ji-hye, a lawyer at Changcheon Law Firm representing Hanbitco, said, "The company continuously asserted during the inspection process, upon receiving the disciplinary notice, and during the disciplinary review that it did not neglect customer identification obligations, but the initial disciplinary notice and the final disciplinary review result hardly changed," adding, "This was thoroughly explained in court, leading to the cancellation ruling."

If Upbit is actually disciplined, it is expected to affect future business renewals. According to the FIU's domestic virtual asset operator registration status as of the 13th, among domestic virtual asset operators, only Prabang has completed the virtual asset service provider (VASP) renewal registration. Upbit, which was the first to file for renewal, had a notification scheduled for November 19 last year but it has been postponed into the new year.

Dunamu, the operator of Upbit, stated, "The disciplinary results have not been finalized yet," and added, "We will diligently explain through future procedures such as the disciplinary review committee."

The FIU said, "Nothing has been finalized regarding disciplinary matters related to Upbit," and requested, "Please exercise caution in reporting."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.