With the South Korean government recently imposing strict new rules on the cryptocurrency industry that have driven dozens of digital asset platforms out of business, a lawmaker is accusing the country’s top financial regulator of favorable treatment toward Upbit, the country’s largest crypto exchange.
At the annual National Assembly audit yesterday, South Korean lawmaker Yun Chang-hyun, who had previously announced his plan to propose a new law for the country’s virtual asset industry, called the relationship between Upbit and the Financial Services Commission (FSC) into question.
South Korea’s revised Act on Reporting and Use of Certain Financial Information mandated virtual asset exchanges to comply with strict new standards on strengthening information security and anti-money laundering measures by Sept. 24. The first requirement was obtaining an Information Security Management System (ISMS) certification to prove they have adequate safeguards for protecting user information. The second condition required a crypto exchange to attain a contract with a local bank so that customers can have withdrawal and deposit accounts in their real names. This requirement is intended to lower the risk of financial crimes such as money laundering or price manipulation.
Only four exchanges — Upbit, Bithumb, Coinone and Korbit — managed to successfully comply with the new regulations. Upbit, undoubtedly the largest exchange in Korea with around 80% of total market share, was the first one to report its full compliance to the financial authorities on Aug. 22. The FSC accepted Upbit’s compliance report on Sept. 17, which made the exchange the first verified virtual asset trading platform in South Korea.
Upon FSC’s registration of the exchange, Upbit was supposed to commence its know-your-customer (KYC) obligations right away. This did not take place as scheduled, according to the lawmaker. “[The FSC] postponed Upbit’s start date of its KYC obligations to Oct. 6,” said Yun, adding that the FSC gave more leeway to the exchange deliberately. “Isn’t this special treatment [towards Upbit]?,” Yun said.
The FSC has been criticized before on its alleged offering of privileges to certain crypto exchanges. A few weeks before the given deadline for exchanges to submit a compliance report to the authorities, nine of Korea’s smaller exchanges held a joint press conference that presented complaints about an unlevel playing field for virtual asset exchanges attempting to meet the FSC’s requirements.
The officials claimed the requirements mandated by the FSC were constructed favorably to Upbit, Bithumb, Coinone and Korbit, which already acquired the ISMS certification and the real-name account bank contract. Other exchanges that did not have the infrastructure argued most local banks were unwilling to partner with cryptocurrency exchanges even after spending millions in getting the ISMS certification and building internal anti-money laundering systems.
Meanwhile, Yun also alleged there have been suspicious backdoor listings on behalf of Upbit by utilizing its corporation in Indonesia.
According to Yun, cryptocurrencies Milk (MLK), dKargo (DKA) and Ton (TON) that were initially listed on Upbit Indonesia surged a suspicious amount in price when they were listed on the Upbit exchange in Korea — which subsequently plunged in seven to eight hours. When Milk was listed February 2020 on Upbit Korea, its price rose from 1,620 Korean won to 2,620 won, then fell to 1,250 won in seven hours. Ton and dKargo investors also experienced the same volatility when they were listed later that year. Yun insisted that a party of private investors affiliated with Upbit took advantage of the situation, while other retail investors were left damaged.
Upbit rebutted Yun’s claim, saying that “Dunamu (Upbit’s operator) does not own any shares in Upbit Indonesia. The overseas corporation is under a partnership that only shares technical support. A backdoor listing is structurally impossible.”