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

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

A local media report cited FSC chairman Kim Byoung-hwan, stating 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 an Oct. 10 parliamentary session, during which Democratic Party lawmaker Lee Kang-il raised concerns about the risks associated with a single entity accounting for such a large market share.

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

Lee alleges that Upbit’s dominance grew after it partnered with K Bank, a domestic digital bank. He also raised concerns about K Bank’s upcoming IPO, highlighting the risks tied to its heavy reliance on Upbit’s deposits.

According to Lee, the concentration of Upbit’s deposits in K Bank reportedly amounts to 4 trillion won or about 20% of the bank’s total deposits of 22 trillion won. 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 under 1%.

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

South Korea has increased its oversight of the crypto sector in recent years with the government implementing strict anti-money laundering measures and investor protection policies. Regulators also introduced the Protection of Virtual Asset Users in June, mandating VASPs to hold at least 80% of users’ digital assets in cold storage with credible financial institutions.

Further, the Financial Supervisory Service, the executive arm of the FSC, has also established a real-time monitoring system in collaboration with cryptocurrency exchanges.

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