FSC Launches Investigation into South Korea’s Leading Crypto Exchange Upbit

The largest cryptocurrency exchange in the country, Upbit, is the subject of an investigation by the Financial Services Commission (FSC) of South Korea due to growing worries about its market dominance and tight ties to K Bank. The financial authority of the nation is making this disclosure in an effort to evaluate the power dynamics inside the cryptocurrency industry.

This information was disclosed by FSC chairman Kim Byoung-hwan during a parliamentary meeting on October 10. Democratic lawmaker Lee Kang-il expressed concern about the dangers associated with one company controlling such a large portion of the market. Based on 24-hour trading volume, Upbit is currently the fifth-largest cryptocurrency exchange worldwide. As of June 2024, Statista data indicates that Upbit serves over 8 million users, accounting for almost 80% of the South Korean cryptocurrency market.

Lee pointed out that Upbit’s market power has surged following its partnership with K Bank, a domestic digital bank. He highlighted the potential risks tied to K Bank’s forthcoming initial public offering (IPO), particularly its reliance on Upbit’s deposits. Reports indicate that deposits from Upbit represent around 4 trillion won, or about 20% of K Bank’s total deposits of 22 trillion won. This concentration raises concerns that any disruption to Upbit transactions could trigger a “bank run” at K Bank.

Concerns Over Interest Rates and Investor Safety

The lawmaker also scrutinized K Bank’s decision to offer a 2.1% interest rate on deposits held with Upbit, especially given that the bank’s operating profit margin is below 1%. These practices could expose the bank and its customers to significant risks.

Acknowledging these concerns, Kim announced that the Virtual Assets Committee would conduct a thorough investigation into Upbit’s dominance and K Bank’s role in its operations. The FSC has ramped up its oversight of the cryptocurrency market in recent years, implementing stringent anti-money laundering measures and investor protection policies. In June, regulators introduced the Protection of Virtual Asset Users initiative, requiring Virtual Asset Service Providers (VASPs) to maintain at least 80% of users’ digital assets in cold storage with reliable financial institutions.

In addition, the FSC’s executive body, the Financial Supervisory Service (FSS), has worked with a number of cryptocurrency exchanges to create a real-time monitoring system. Kim has continuously urged prudence, particularly with regard to banks’ involvement in the cryptocurrency industry. He underlined earlier this year how crucial it is to put investor protection first when permitting corporate bank accounts to be used for cryptocurrency transactions.