South Korean financial authorities are currently evaluating potential sanctions against several overseas cryptocurrency exchanges, including BitMEX and KuCoin, for reportedly providing services to Korean clients without the necessary registration.
Overseas Crypto Exchanges Risk Sanctions
As reported last Friday by local news outlet Hangyung, the Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) has identified multiple foreign crypto exchanges offering services to Korean customers without appropriate registration. Among the platforms facing scrutiny are well-known entities such as BitMEX, KuCoin, CoinW, Bitunix, and KCEX, all of which have failed to register as Virtual Asset Service Providers (VASPs) while actively targeting Korean users.
The financial authority discovered that these platforms operate Korean-language websites and provide market as well as customer support tailored for Korean investors without informing the relevant authorities or seeking a VASP license. Under the Specified Financial Information Act, exchanges are required to register as VASPs with the FIU to acquire a license for conducting business in South Korea, which includes the storage, brokerage, and management of crypto assets.
Failure to comply with these regulations renders these exchanges illegal operations, exposing them to potential criminal and administrative penalties. In response to these violations, the FIU has reportedly initiated measures to block access to these platforms while consulting with relevant authorities.
In 2022, the FIU had already requested the Korean National Security Agency to obstruct access to 16 overseas exchanges, including MEX and Poloniex, for similar registration violations. Furthermore, the FIU collaborated with domestic card companies to restrict crypto-related purchases using credit cards, resulting in several exchanges withdrawing from the Korean market.
An official from the FIU stated that the unit is considering blocking access to undeclared overseas exchanges providing services to local investors in consultation with the Korea Communications Commission. Additionally, the FIU is enhancing its communication with other authorities by gathering data on affected cases and anticipates tangible actions to be implemented within the year.
Top Korean Exchanges Hit With Controversy
Compounding the situation, South Korean exchanges have also come under fire recently due to allegations regarding the collection of significant fees for project listings on platforms such as Upbit and Bithumb. According to Wu Blockchain, anonymous sources have claimed that various projects paid exorbitant intermediary fees to secure listings on South Korea’s largest cryptocurrency exchanges.
The alleged fees have reached up to $10 million for one exchange and $2 million for another, with intermediaries reportedly linked to Upbit’s shareholders and market makers. Some projects indicated that they provided intermediary fees ranging from 3% to 5% of the total token amount to successfully get listed on Upbit.
However, Upbit has denied these allegations, stating on March 20 that it has not received any listing fees for the trading support of specific crypto assets. In their statement, Upbit emphasized that all procedures regarding listings are handled directly by its employees and cautioned against potential scams involving external intermediaries claiming to provide trading support.
“Upbit does not allow the involvement of external agencies to assist or intermediate trading support, and all procedures are conducted directly by Upbit employees. Therefore, if a specific company or individual demands intermediary fees while claiming to guarantee trading support from Upbit, please be advised that this is the act of illegal brokers unrelated to Upbit, and we ask for your special caution to prevent any damage from such actions.”
Meanwhile, Bithumb is also embroiled in a separate controversy following a raid on its headquarters due to allegations of financial law violations by its former CEO, Kim Dae-sik, who is accused of embezzling approximately $2 million to fund a personal apartment purchase.
