The qualification renewal for Upbit, the largest virtual asset exchange in the country, is delayed. This is due to the sanctions review committee of the financial authorities conducting a review regarding allegations that Upbit violated customer verification systems and did not fulfill anti-money laundering (AML) obligations. It is known that the main issue in this sanctions review is transactions with unregistered operators. Upbit has recently moved quickly to expand AML-related regulations, and Bithumb is also confirmed to be considering this.
According to the virtual asset industry on the 11th, the third sanction review for Upbit by the Financial Intelligence Unit (FIU) was held the previous afternoon. The result is still undecided, but reviews are ongoing weekly since last week. The main allegations against Upbit are non-compliance with customer verification systems (KYC) and violations of AML. In particular, it has been reported that during the last two sanctions reviews, the number of transactions with unregistered virtual asset operators related to AML has been particularly problematic.
The Act on Reporting and Using Specific Financial Transaction Information (Special Funds Act) prohibits domestic exchanges from conducting transactions for business purposes with overseas unregistered operators through Article 6, Paragraph 3. An overseas unregistered operator is defined as a business that provides a Korean-language homepage or services aimed at Korean nationals without registering as a business under the Special Funds Act, and transactions with them can violate regulations on money laundering and terrorism financing. Currently, the authorities classify KuCoin, MEXC, Phemex, and others as overseas unregistered operators.
In addition, the Special Funds Act stipulates that virtual asset operators must comply with the "travel rule." The travel rule is a regulation established by the Financial Action Task Force (FATF), mandating the sharing of sender and recipient information when transacting virtual assets over 1 million won. Exchanges have adopted solutions, such as VerifyVASP, to comply with the travel rule and have adhered to it well.
However, the issue lies with transactions of virtual assets under 1 million won. Transactions below 1 million won are not subject to the travel rule. Therefore, transactions have been conducted without verifying sender and recipient information. During the Upbit investigation, transaction records below 1 million won, including those with overseas unregistered operators, were discovered, leading to issues. Theoretically, it was possible to conduct money laundering by repeatedly making small transactions if one wished.
On the afternoon of the 6th, the day after the second sanctions review concluded, Upbit announced that it would expand regulations even for transactions under 1 million won. The key point is that virtual assets associated with unverified deposits — not those withdrawn using addresses confirmed by Upbit or through travel rule solutions — would be restricted from being withdrawn in won.
Furthermore, beyond Upbit, domestic won exchanges, excluding Gopax, including Bithumb, Coinone, and Korbit, are reportedly experiencing transactions related to overseas unregistered operators. Bithumb, which holds the second-highest market share after Upbit, recently stated that it is "internally reviewing" the expansion of the travel rule according to the recent mood of the authorities.
The level of sanctions against Upbit inevitably affects the sanctions on other exchanges, leading domestic virtual asset exchange operators to closely monitor the results of Upbit's sanctions review. An industry official noted, "Recently, the financial authorities have detected numerous transactions below 1 million won involving overseas unregistered operators across several exchanges, forcing all domestic exchange operators to strengthen regulations on transactions with unregistered operators."