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Tim Alper
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Tim Alper
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Critics have hit out at South Korean regulators’ Upbit sanctions verdict, calling the punishment dished out to the crypto exchange “ineffective.”
Experts were speaking after the Financial Intelligence Unit (FIU) hit Dunamu, the operator of the Upbit exchange, with a three-month business suspension order.
Upbit Sanctions Under Fire
The FIU’s ruling was a response to revelations that Upbit “supported a total of 44,948 virtual asset transfer transactions” with “19 unreported, overseas-based virtual asset business operators.”
Per Seoul Daily and Newsway, the FIU’s order means that new Upbit customers will not be able to transfer or receive crypto in their wallets for the entire three-month period.
The FIU will also follow up with fines, which will be finalized at a later date. Dunamu CEO Lee Seok-woo was also hit with a disciplinary warning, while the firm’s compliance and transaction reporting chiefs were forced to step down.
Another eight employees were also hit with “disciplinary action.”
But several unnamed crypto industry figures claimed that the move would only help Upbit to boost its profit margins and “cement its position as a monopoly.”
The critics claimed that the sanctions would be “ineffective” as they only block new customers from transferring their crypto to third-party wallets or other exchanges.
Could Sanctions Backfire?
The measures do not stop Upbit from accepting new users, nor does it restrict their activities, provided they only buy or sell tokens on the Upbit platform.
The sanctions also allow new Upbit users to make fiat KRW transactions, meaning that customers “can withdraw KRW and use it on another exchange.”
As such, they added, “given that Upbit has over 70% of the domestic market share,” the sanctions “are unlikely to cause customers” to ditch their Upbit accounts in favor of a rival platform.
The experts added that as most crypto exchange users value “convenience” above all, “customers who trade virtual assets are significantly less likely” to go through the hassle of moving their coins off the Upbit platform.
As such, they continued, the sanctions would likely end up benefiting Upbit, rather than harming it.
The experts said the measures would end up becoming “a means to prevent Upbit users from leaving the platform, rather than a sanction.”
Fines to Follow
The sanctions are also unlikely to hit Upbit in the pocket, the critics added. They explained that forcing new customers to stay on the Upbit platform would help the exchange continue making money from commission fees.
And the critics said that the restrictions could also create artificial coin price discrepancies on domestic platforms.
They called for “symbolic fines” rather than “ineffective sanctions or disciplinary actions.” One of the unnamed insiders said:
“Restricting transfers will only strengthen Upbit’s position as a monopoly. In the end, questions will likely be asked about the FIU’s sanctions.”
However, the FIU could well follow up with heavy fines. A spokesperson for the regulator explained that the FIU had not yet reached a “final decision” on fines.
The regulator said that it would make an announcement on fines after “future disciplinary hearing discussions.”
FIU Warnings
The body said that it had previously asked Upbit to block transfers to the likes of MEXC and KuCoin, and “had informed” Upbit about the “need to comply with the law.”
The FIU conducted a number of “on-site inspections” at Upbit in August, September, and October 11.
The regulator judged that thousands of the aforementioned transactions violated anti-money laundering protocols.
The FIU also noted that Dunamu allowed customers who “submitted IDs that were difficult to verify,” including “out-of-focus photos,” to make transactions.
It also found that Upbit allowed 5,785 customers “whose left address fields or entered incorrect information” to pass its Know Your Customer (KYC) protocols.
Earlier this month, the National Tax Service announced it was launching an investigation into Upbit over suspected tax violations.
