Upbit Faces Scrutiny as South Korea’s FSC Launches Investigation Into Crypto Exchange’s Market Dominance

• FSC to investigate Upbit’s market dominance, raising concerns over K-Bank’s reliance on Upbit-related deposits.
• K-Bank prepares for IPO as scrutiny increases over its 20% deposit share tied to Upbit, posing potential liquidity risks.
• Upbit strengthens regulatory compliance but faces further investigation over its market dominance and ties with K-Bank.

South Korea’s Financial Services Commission (FSC) said it will investigate the growing market dominance of Upbit, the nation’s largest cryptocurrency exchange. This follows concerns raised during a National Assembly audit on the potential risks posed by the exchange’s dominance in the domestic crypto market. 

Upbit, also the second-largest spot crypto exchange globally, has significantly increased its influence since forming a partnership with K-Bank. Notably, K-Bank is preparing for its initial public offering (IPO), while about 20% of its total deposits are tied to Upbit customers.

Concerns Over K-Bank’s Relationship with Upbit

During the state audit, lawmaker Lee Kang-il expressed concerns about the financial concentration surrounding Upbit, particularly its impact on K-Bank. He highlighted that out of K-Bank’s 22 trillion won in deposits, 4 trillion won, or 20%, comes from Upbit-related deposits. 

This substantial reliance has led to fears that if Upbit transactions are disrupted, K-Bank could face a severe liquidity crisis. A potential bank run could occur, severely destabilizing the institution.

The issue has drawn attention as K-Bank prepares for its public listing. Lee questioned the financial arrangement, particularly the high 2.1% interest rate K-Bank offers Upbit depositors, despite the bank operating on a profit margin of less than 1%. 

According to Lee, this arrangement violates South Korea’s principle of separating finance from industry, signaling further scrutiny into the nature of the partnership between the two entities.

FSC’s Response and Investigation Plans

Responding to the concerns, FSC Chairman Kim Byung-hwan acknowledged the issues surrounding Upbit’s dominance and confirmed that a comprehensive review would be conducted. 

He emphasized that the upcoming K-Bank IPO had undergone thorough evaluation, but further investigation is warranted. The FSC plans to assess the virtual asset market and its monopoly structure through the Virtual Asset Committee.

Upbit’s Regulatory Moves Amid Growing Scrutiny

Upbit has previously faced regulatory challenges, including a 2018 investigation into fraud allegations that caused disruption in the crypto market. In recent months, the exchange has taken steps to comply with local regulations, notably the Virtual Asset User Protection Act (VAUPA). 

In July, Upbit implemented measures to prevent insider trading, signaling its efforts to align with regulatory expectations. However, its close ties with K-Bank and growing market power continue to attract scrutiny from both lawmakers and financial regulators.