South Korea Targets BitMEX, KuCoin for Unregistered Crypto Services

South Korean financial authorities are considering imposing sanctions on multiple overseas crypto exchanges, including BitMEX and KuCoin, for allegedly offering their services to Korean customers without proper registration. The Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) has identified several foreign crypto exchanges that have not registered as Virtual Asset Service Providers (VASPs) despite targeting Korean users.

The FIU found that these exchanges, including BitMEX, KuCoin, CoinW, Bitunix, and KCEX, operate Korean-language websites or provide market and customer support activities targeted at Korean investors without notifying authorities or filing for a VASP license. Under the Specified Financial Information Act, exchanges must formally register as a VASP with the FIU to obtain a license and conduct business in the country, such as storage, brokerage, and management of crypto assets.

Failure to report to the financial authorities will make these platforms illegal businesses and subject them to criminal and administrative sanctions. The FIU, which is investigating these exchanges, has reportedly begun preparing measures, including blocking access to their platforms, while consulting with the relevant authorities. In 2022, the FIU requested the National Security Agency to block 16 overseas exchanges, including MEX, Poloniex, and KuCoin, for offering their services without registration.

The watchdog also cooperated with domestic card companies to block crypto-related purchases and payment services using credit cards in the country, which resulted in many exchanges withdrawing from the Korean market. An FIU official stated that the unit is “currently reviewing measures to block access to undeclared overseas exchanges that provide services to domestic investors in consultation with the Korea Communications Commission.” Additionally, they “are strengthening communication between authorities by compiling data on damage cases and related data,” concluding that they “expect tangible measures to be taken within the year.”

This move by South Korean authorities highlights their commitment to regulating the crypto industry and ensuring that all exchanges operating in the country comply with local laws. The sanctions and potential blocking of access to these exchanges send a clear message to other foreign exchanges that they must register and adhere to the regulations set by the FIU. This development is part of a broader effort to protect domestic investors and maintain the integrity of the financial system.

The FIU's actions are not limited to foreign exchanges. South Korean exchanges have also faced controversy recently. Reports alleged that Upbit and Bithumb intermediaries requested significant fees to list projects on their platforms. According to anonymous sources, various projects had “paid huge intermediary fees to have their tokens listed on South Korea’s largest cryptocurrency exchanges.” The alleged fees were around $10 million and $2 million, respectively, with the intermediaries being “related to Upbit’s shareholders and market makers.” Some projects claimed to have “provided an intermediary fee ranging from 3% to 5% of the total token amount, and eventually managed to get listed on Upbit successfully.”

Upbit denied the allegations, stating that it does not allow the involvement of external agencies to assist or intermediate trading support, and all procedures are conducted directly by Upbit employees. The exchange warned investors to be cautious of illegal brokers demanding intermediary fees. Meanwhile, Bithumb faces another crypto scandal after the South Korean policy raised its headquarters on Thursday. The company is under investigation for potentially violating financial laws following claims that the exchange’s former CEO, Kim Dae-sik, embezzled around $2 million to purchase an apartment for personal use.