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South Korea’s Financial Services Commission plans to investigate Upbit over concerns about its market dominance and its close ties with K Bank.
Investigation into Market Dominance
The Financial Services Commission (FSC) of South Korea has announced plans to thoroughly investigate Upbit, the country’s largest crypto exchange, focusing on its market dominance. FSC Chairman Kim Byoung-hwan, during an Oct. 10 parliamentary session, addressed concerns raised by Democratic Party lawmaker Lee Kang-il about the risks associated with a single entity holding a significant market share.
Upbit’s Market Position
Upbit is not only South Korea’s largest crypto exchange but also ranks as the fifth largest globally by 24-hour trading volume. As of June 2024, Upbit accounted for approximately 80% of South Korea’s cryptocurrency market share, boasting a customer base of over 8 million users.
Concerns Over K Bank Partnership
Lawyer Lee Kang-il pointed out that Upbit’s dominance surged after its partnership with K Bank, a domestic digital bank. He expressed concerns about the upcoming Initial Public Offering (IPO) of K Bank, noting the risks associated with its heavy reliance on Upbit’s deposits.
Potential Risks Highlighted
According to Lee, Upbit’s deposits in K Bank amount to 4 trillion won, representing about 20% of the bank’s total deposits of 22 trillion won. He warned that any disruption in Upbit’s transactions could trigger a “bank run” at K Bank.
Interest Rate Concerns
The lawmaker also questioned K Bank’s decision to offer a 2.1% interest rate on Upbit deposits, especially since the bank’s operating profit margin is under 1%.
Regulatory Oversight
Kim Byoung-hwan acknowledged these concerns, stating that the Virtual Assets Committee, responsible for monitoring the cryptocurrency market, will conduct a comprehensive review of Upbit’s dominance and K Bank’s role in supporting it.
In recent years, South Korea has increased its oversight of the crypto sector, implementing strict anti-money laundering measures and investor protection policies. The government introduced the Protection of Virtual Asset Users in June, requiring Virtual Asset Service Providers (VASPs) to hold at least 80% of users’ digital assets in cold storage with credible financial institutions.
Real-Time Monitoring
The Financial Supervisory Service, the executive arm of the FSC, has established a real-time monitoring system in collaboration with cryptocurrency exchanges.
Cautious Approach to Bank Involvement
Chairman Kim has maintained a cautious stance on banks engaging with the crypto sector. Earlier this year, he warned of the risks involved with allowing bank accounts for corporate use in crypto transactions, emphasizing the need to prioritize investor protection measures.
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