South Korea’s largest crypto exchange Upbit to be probed by the FSC

South Korea’s Financial Services Commission plans to investigate due to concerns about Upbit’s market dominance and close ties to K Bank.

A local media report stated that FSC chairman Kim Byoung-hwan stated that the country’s top financial regulator will thoroughly investigate the concentration of power in South Korea’s crypto market, focusing on Upbit’s market monopoly.

The FSC chairman’s remarks came during the October 10 parliamentary session, where Democratic Party lawmaker Lee Kang-il expressed concerns about the risks posed by a single entity with such a large market share.

Upbit is the largest crypto exchange in South Korea and the fifth largest crypto exchange in the world in terms of 24-hour trading volume. As of June 2024, the platform accounted for nearly 80 percent of the country’s cryptocurrency market share and a customer base of more than 8 million users, according to data from Statista.

Lee claims that Upbit’s dominance increased after partnering with K Bank, a local digital bank. He also expressed concern about K Bank’s upcoming IPO, highlighting risks arising from the bank’s heavy reliance on Upbit deposits.

The concentration of Upbit’s deposits at K Bank is reportedly 4 trillion won, or about 20% of the bank’s total deposits of 22 trillion won, according to Lee. He warned that if Upbit transactions were disrupted it could lead to a “bank run” at K Bank.

The lawmaker also questioned K Bank’s decision to offer a 2.1% interest rate on Upbit deposits, especially considering the bank’s operating profit margin is below 1%.

Kim Byoung-hwan acknowledged these concerns and added that the Virtual Assets Committee, which is responsible for monitoring the cryptocurrency market, will conduct a comprehensive review of Upbit’s dominance and K Bank’s role in supporting it.

South Korea has increased its control over the crypto sector in recent years, with the government implementing strict anti-money laundering measures and investor protection policies. Regulators also implemented the Virtual Asset User Protection Act in June, requiring VASPs to keep at least 80% of users’ digital assets in cold storage at trusted financial institutions.

Additionally, the Financial Supervisory Service, the enforcement arm of the FSC, has also established a real-time monitoring system in cooperation with cryptocurrency exchanges.

Meanwhile, Chairman Kim has maintained a cautious approach towards banks interested in the crypto sector. Earlier this year, he warned of the risks involved in allowing corporate use of bank accounts for crypto transactions, citing the need to prioritize investor protection measures.