South Korea is taking stringent measures against non-compliant cryptocurrency exchanges in a move designed to enforce its financial regulations more effectively. On March 21, 2025, local media reports indicate that the Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) is planning to impose sanctions on platforms accused of operating without proper registration as virtual asset service providers (VASPs). This investigation includes well-known exchanges like KuCoin and BitMEX, raising concerns about their adherence to the Specified Financial Information Act.
The FIU is currently analyzing a list of exchanges, consulting with relevant agencies, and preparing to implement various actions, including blocking access to these platforms. Reports suggest that many of these exchanges have been providing services such as marketing and customer support to South Korean clients without fulfilling the legal registration requirements. "We are closely monitoring regulatory developments across all jurisdictions, including Korea. At KuCoin, we believe that compliance is essential for the healthy and sustainable growth of the crypto industry—this has always been our stance and will continue to guide us as we move forward," a KuCoin representative stated.
Under South Korean law, any operator involved in the sale, storage, brokerage, and management of cryptocurrencies must report their activities to the FIU. Failure to comply with these regulations could result in economic penalties as severe as criminal charges and administrative sanctions. An FIU official has confirmed that they are reviewing measures to prohibit access to the exchanges identified in their investigation. This assessment is happening in conjunction with the Korea Communications Standards Commission (KCSC), which oversees internet regulations in the country.
The drive against non-compliance follows significant scrutiny of South Korean exchanges, as domestic cryptocurrency platforms are also under investigation for financial misconduct. On March 20, 2025, prosecutors raided the Bithumb exchange due to allegations that its former CEO, Kim Dae-sik, embezzled company funds to purchase an apartment. Bithumb maintains that Kim had already taken out a loan to repay any funds he owed.
Adding to the turmoil, rumors have circulated that intermediaries have received kickbacks for facilitating the listing of projects on both Bithumb and Upbit. In response to these allegations, Upbit has demanded that media outlets disclose the names of the projects reportedly involved in such transactions, aiming to clear its name amid mounting suspicion.
As South Korean authorities ramp up their scrutiny of cryptocurrency exchanges, they are also considering implementing blocks on unregistered platforms. Their plans could involve technical measures at the internet service provider (ISP) level, urging ISPs to restrict access to these exchanges. This method, however, has raised concerns about users finding ways to bypass such restrictions using Virtual Private Networks (VPNs).
This investigation forms part of South Korea's broader effort to tighten regulations on its financial markets, especially after previous incidents involving compliance failures. Just last month, the FIU had imposed a three-month suspension on Upbit for its role in facilitating transactions with unregistered providers, revealing serious lapses in their customer identification verification process. Thousands of users were reportedly allowed to transact without proper verification, utilizing unclear and incomplete documentation.
Furthermore, the upcoming regulations outlined by the Financial Services Commission intend to address existing gaps in the legal framework. This initiative is expected to evolve further by the end of 2025, as officials emphasize the importance of robust regulation in the rapidly changing landscape of cryptocurrencies. Kim So-young, vice chairman of the FSC, mentioned that they are actively exploring measures to bolster regulatory compliance in the evolving virtual asset market.
As the enforcement begins to take shape, both domestic and international exchanges may find themselves recalibrating their operations in South Korea. The emphasis on compliance highlights the government's seriousness about safeguarding investor interests and ensuring transparency within the cryptocurrency sector.
In summary, the FIU's crackdown on cryptocurrency exchanges operating without adequate reporting reflects South Korea's commitment to establishing a stringent regulatory environment for the burgeoning digital asset landscape. Amidst ongoing scrutiny, exchanges like KuCoin and Bithumb are now facing the potential of severe administrative actions that could reshape the future of crypto trading in the region.
