FIU Targets Exchanges: “Could Impact Virtual Asset Business Renewals”

# Financial Authorities Conduct Simultaneous Inspections of Major Digital Asset Exchanges # Tension Rises Amidst Compliance Crackdown The financial authorities have commenced simultaneous on-site inspections of major domestic digital asset (virtual asset) exchanges, heightening tension within the industry. Experts foresee that significant legal violations uncovered during these inspections could impact the renewal of Virtual Asset Service Providers (VASPs). In response, exchanges are tightening internal control systems and increasing relevant staffing. # Upcoming Inspections and Recent Regulatory Actions According to industry reports on the 11th, the Financial Intelligence Unit (FIU) will conduct an on-site inspection of Bithumb starting on the 17th. This follows the FIU’s regulatory actions against Upbit's operator Dunamu on the 28th of last month, emphasizing the importance of customer due diligence and compliance obligations. The FIU's announcement indicated that Upbit was found in violation of multiple anti-money laundering obligations under the Specific Financial Information Act (the "Act"), including the prohibition on transactions with unregistered virtual asset service providers, customer verification duties, and suspicious transaction reporting requirements. This led to penalties such as a three-month suspension of new customer virtual asset deposits and withdrawals, and a reprimand for the CEO. Dunamu has filed an administrative lawsuit against these measures, and the sanctions' enforcement has been temporarily halted. # Industry Concerns and Responses These regulatory actions have escalated concerns within the industry. There is apprehension that other exchanges might not pass the inspections if subjected to the same standards as Upbit. Lawyer Kang Yeon-ho from the law firm Sejong remarked, “The authorities will assess the current status of exchanges through these inspections, and it’s likely the regulatory standards will be as stringent as those applied to Upbit.” A digital asset industry insider also noted, "The issue of transactions with unregistered service providers is not exclusive to Upbit. Most exchanges are not entirely free from this problem. Therefore, these measures could have a broader impact." # Implications for VASP Renewals There are projections that the severity of these sanctions could influence VASP renewals. Lawyer Kang stated, “Given that these on-site inspections are being conducted on Korean Won-based exchanges rather than coin-to-coin exchanges, significant legal violations discovered could affect VASP renewals. However, he added, “The financial authorities will likely not base renewal decisions solely on legal infractions.” # Strengthening Compliance Measures Amid the ongoing rigorous inspections by authorities, exchanges are bolstering their compliance measures. Since the 26th of the previous month, Upbit has been recruiting IT audit personnel to ensure compliance. Bithumb and Coinone are also enhancing their regulatory response by increasing their development and policy-related staff. Lawyer Kang forecasted, “Exchanges will further strengthen their compliance systems in preparation for these inspections, and it is expected that investment in customer verification procedures and abnormal transaction monitoring systems will increase.”