The Financial Intelligence Unit (FIU) of Korea announced it has accepted Upbit’s business report after it had fully complied with South Korea’s latest regulations for crypto exchanges. Upbit is the first virtual asset business that is licensed to operate lawfully under a Sept. 24 filing deadline. Since Upbit submitted its report on Aug. 20, other large-scale exchanges Bithumb, CoinOne and Korbit have submitted their applications to the FIU. However, they have not yet been accredited by the authorities.
Back in March, the revised Act on Reporting and Use of Certain Financial Information issued new requirements for virtual asset exchanges to abide by in six months. The first requirement is obtaining the Information Security Management System (ISMS) certification, which proves the capability of a business in protecting users’ personal information. The second requirement is getting a partnership with a local bank in Korea to provide crypto exchange users with withdrawal and deposit bank accounts under their real names.
These requirements are designed to ensure virtual asset businesses are safe platforms for cryptocurrencies and transparency in cryptocurrency transactions. These new standards had left crypto exchanges in a scurry, with numerous exchanges going out of business, citing the new regulations as the direct cause of shutdown.
However for Upbit, the tough regulations acted to its advantage. It had already secured the ISMS certification back in 2018, and had a real-name bank account contract with K-Bank as of June 2020. For crypto investors, Upbit has been one of the safer options for trading platforms in terms of regulatory control.
A system link with KakaoTalk, South Korea’s most used messenger service app, is cited as another factor contributing to Upbit’s popularity. Users can sign up to Upbit by using their KakaoTalk accounts without offering additional personal information to Upbit. The Kakao Group is Upbit’s owner Dunamu’s shareholder.
Upbit has grown exponentially especially this year with the announcement of the crypto regulations. According to data released by lawmaker Yun Chang-hyun’s office, Upbit’s Bitcoin trade share went from 46.34% in December last year to 83.28% in August this year. Its runner-up Bithumb has a share of only 11.62% of total Bitcoin trade volume. The latest figures from CoinGecko on Sept. 6 show Upbit’s daily trade volume is around US$14.9 billion, dominating the Korean crypto market by 88.25%.
According to the Concentration Ratio (CR) adopted by the Fair Trade Commission of Korea, it is considered a monopoly when a market leader has a market share of over 50% — meaning that the South Korea crypto market is under Upbit’s monopoly. Lawmakers Yun Chang-hyun and Noh Woong-rae claim the monopoly can seriously undermine the elements of fair trade in the market.
Kang Seong-hoo, senior vice president of the Korea Digital Asset Service Provider Association, told Forkast.News the government needs to allow more exchanges to be registered to make for a healthy, competitive market where exchanges will develop more diversified and cost-effective services, leaving more quality choices for consumers.
Another expert, however, says there is a possibility the monopoly benefits the investors. “In a natural monopoly, the market leader may actually lower the fees for consumers, since it could cut down on transaction costs from not having any competitors,” said Kim Dae-jong, professor of business at Sejong University. Nevertheless, he also warned there is the same possibility that a sole market player could manipulate the fees.
