South Korea’s largest crypto exchange, Upbit, is taking legal action against financial regulators in a high-stakes battle over compliance penalties that could reshape the country’s digital asset landscape.
Dunamu, the parent company of Upbit, has filed a lawsuit against South Korea’s Financial Intelligence Unit (FIU), seeking to overturn business sanctions imposed on the exchange.
According to a Feb. 28 report from Yonhap News Agency, Dunamu submitted its lawsuit to the Seoul Administrative Court on Feb. 27. The company also filed for an injunction to halt the enforcement of the sanctions while the case is pending.
The legal challenge follows the FIU’s partial suspension of Upbit’s operations, barring the exchange from processing external crypto transactions for new users. While existing customers remain unaffected, the move has sparked concerns about regulatory overreach and potential disruption to South Korea’s crypto sector.
Regulators Crack Down on Upbit Over Alleged KYC Violations
The sanctions stem from an FIU probe that accused Upbit of facilitating over 45,000 transactions with unregistered foreign crypto exchanges—a violation of South Korea’s financial transaction laws.
Authorities also flagged major flaws in Upbit’s Know Your Customer (KYC) verification process, including:
- Accepting photocopied IDs instead of original documents.
- Approving applications with obscured identification details.
- Failing to verify driver’s licenses with encrypted serial numbers, leading to 190,000 cases of incomplete verification.
- Over 9 million instances where customer re-verifications were conducted without official ID documents.
A particularly alarming test revealed that a subcontractor hand-drew an ID card as part of an internal system evaluation yet Upbit’s verification system still approved it. While regulators didn’t classify this as a violation (since it was a test), it raised serious concerns about Upbit’s compliance framework.
From Market Dominance to Monopoly Concerns
Founded in 2017, Upbit has grown into South Korea’s dominant crypto exchange, controlling an estimated 80% of the local market. This dominance led to monopoly concerns, prompting regulatory scrutiny from the Financial Services Commission (FSC) in October 2024.
By November 2024, the FIU claimed to have uncovered over 500,000 compliance violations, leading to January 2025’s business suspension order.
The fallout extended beyond Upbit’s business operations—nine executives, including the CEO, faced disciplinary action. The company’s compliance officer was dismissed, making them the first-ever compliance officer in South Korea’s crypto sector to be removed by regulators.
Dunamu’s Response: “The Sanctions Are Unjust”
Upbit has responded to the regulatory crackdown, arguing that the penalties fail to consider key circumstances and the improvements it has already implemented.
“We have reviewed the necessary improvements and have completed the necessary corrective measures,” the exchange stated.
“However, we believe that certain circumstances and details regarding the reasons for some of the sanctions and their severity were not fully considered. Therefore, we will faithfully present these points through the procedures stipulated by the relevant regulations.”
What’s Next? The Fight Over Crypto Regulation in South Korea
Dunamu’s lawsuit could set a critical legal precedent for South Korea’s crypto industry. If the court sides with regulators, it could tighten oversight on other domestic exchanges, forcing stricter compliance measures. However, a win for Upbit could challenge the FIU’s authority, potentially reshaping crypto regulation in the country.
With South Korea emerging as a key player in the global digital asset market, the outcome of this case will have far-reaching implications—not just for Upbit, but for the future of crypto regulation across Asia.
