The Financial Services Commission (FSC) of South Korea has announced plans to investigate Upbit, the country’s largest cryptocurrency exchange, amid growing concerns regarding its market dominance and its close relationship with K Bank.
During a parliamentary session on October 10, FSC Chairman Kim Byoung-hwan addressed these concerns, emphasizing the need for a comprehensive investigation into the concentration of power within South Korea’s cryptocurrency market, particularly focusing on Upbit’s significant market share.
Upbit, recognized as the fifth largest crypto exchange globally by 24-hour trading volume, held approximately 80% of South Korea’s cryptocurrency market share as of June 2024, serving over 8 million users, according to Statista.
Democratic Party lawmaker Lee Kang-il raised alarms about the risks associated with a single entity controlling such a large portion of the market. He specifically pointed to Upbit’s partnership with K Bank, a domestic digital banking institution, which has contributed to Upbit’s rising dominance. Lee also expressed concerns about K Bank’s impending initial public offering (IPO), suggesting that the bank’s heavy reliance on Upbit’s deposits could pose significant risks.
According to Lee, Upbit’s deposits with K Bank total approximately 4 trillion won, making up about 20% of the bank’s total deposits, which are around 22 trillion won. He warned that any disruption to Upbit’s transactions could potentially lead to a “bank run” at K Bank.
Additionally, Lee questioned K Bank’s decision to offer a 2.1% interest rate on deposits from Upbit, particularly given that the bank’s operating profit margin is reported to be under 1%.
In response to these concerns, Chairman Kim confirmed that the Virtual Assets Committee, tasked with overseeing the cryptocurrency market, would conduct a thorough review of both Upbit’s market dominance and K Bank’s involvement.
South Korea has been tightening its regulatory framework around the cryptocurrency sector in recent years. The government has introduced stringent anti-money laundering measures and investor protection policies. Notably, the Protection of Virtual Asset Users law, implemented in June, mandates that Virtual Asset Service Providers (VASPs) secure at least 80% of users’ digital assets in cold storage with reputable financial institutions.
Furthermore, the Financial Supervisory Service, the executive branch of the FSC, has established a real-time monitoring system in collaboration with cryptocurrency exchanges to enhance oversight.
Chairman Kim has consistently advocated for a cautious approach toward banks engaging with the cryptocurrency sector. Earlier this year, he raised concerns regarding the risks associated with allowing corporate accounts for crypto transactions, reiterating the importance of prioritizing investor protection.
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