South Korea's FIU Tightens Crypto Regulations to Curb Money Laundering

South Korea's Financial Intelligence Unit (FIU) is escalating its regulatory crackdown on domestic cryptocurrency exchanges, imposing sanctions for anti-money laundering (AML) compliance failures that could reshape the country's digital asset landscape. The enforcement actions, which began with a landmark penalty against Upbit operator Dunamu, are now targeting Korbit, GOPAX, Bithumb, and Coinone, with final decisions expected by mid-2026. The FIU's year-long inspections revealed systemic lapses in Know Your Customer (KYC) protocols and suspicious transaction reporting, prompting a coordinated wave of penalties that mirror the precedent set by Dunamu's 35.2 billion won ($24.35 million) fine and a three-month suspension of key services.

The FIU's enforcement timeline follows the order of inspections, which began with Dunamu in August 2024 and progressed to Korbit, GOPAX, Bithumb, and Coinone through early 2025. Bithumb, which faced an additional on-site review of its order book system, may see delays in its sanctions. Regulators have identified similar compliance gaps across all inspected exchanges, including failure to verify user identities, improper handling of unverified accounts, and missed suspicious transaction reports. For instance, Dunamu was cited for 8.6 million instances of non-compliance, including 5.3 million cases of inadequate customer verification and 3.3 million instances of allowing trading for unverified users.

Industry observers note the sanctions could reshape market dynamics, potentially squeezing smaller players unable to absorb hefty fines or operational suspensions. However, proponents argue the crackdown enhances institutional confidence by reinforcing regulatory rigor. The FIU's actions underscore South Korea's commitment to aligning its crypto sector with traditional finance's compliance standards, a stance shaped by past crises like the 2017 ICO boom and the 2022 global market collapse.

The penalties are expected to include financial fines, operational restrictions, and disciplinary actions against executives, with industry analysts predicting total fines could reach hundreds of billions of won. The FIU's approach reflects South Korea's stringent crypto regulatory framework, which mandates strict KYC and AML compliance, severe penalties for violations, and routine surprise inspections. The enforcement drive also aligns with broader efforts to stabilize the crypto sector ahead of potential integration with traditional financial products, though delays in implementing a crypto tax regime-currently slated for January 2027-add uncertainty.

With most legal reviews underway, the FIU is unlikely to finalize all sanctions before year-end, but decisions are expected to follow the first-in, first-out inspection sequence, with Korbit likely next in line. The prolonged enforcement cycle highlights the regulator's determination to address systemic risks while balancing innovation and stability in a rapidly evolving market.