South Korea’s Largest Crypto Exchange Upbit Under Fire as Financial Authority Investigates Its Market Monopoly

FSC Investigates Upbit’s Market Dominance Amid Rising Concerns

On 10 October 2024, South Korea's Financial Services Commission (FSC) announced a comprehensive investigation into Upbit, the country’s largest cryptocurrency trading platform.

FSC Chairman Kim Byung-hwan confirmed that the agency will scrutinise the heavy reliance of the virtual asset market on Upbit.

This action comes in light of concerns voiced by lawmaker Lee Kang-il regarding the close ties between Upbit and K Bank, South Korea's first internet-only bank.

What Sparked the Inquiry?

The FSC’s decision to probe Upbit stems from specific allegations regarding its substantial influence on K Bank’s financial stability.

According to Lee, Upbit deposits constitute 4 trillion won of K Bank’s total deposits of 22 trillion won, representing nearly 20% of the bank's assets.

Lee articulated his concerns, stating,

"Is it common sense for K-Bank, which has an operating profit margin of less than 1%, to give 2.1% of Upbit’s customer deposits?"

He cautioned that any disruption to Upbit's operations could potentially lead to a bank run on K Bank.

The Unfolding Financial Landscape

K Bank, established in 2017, is currently preparing for an Initial Public Offering (IPO) aimed at raising approximately 984 billion won (around $731.64 million).

If successful, it would be one of the largest IPOs in 2024.

However, the bank's precarious reliance on deposits from Upbit raises alarms about its long-term viability and market integrity.

Lee's criticism extends beyond the potential risk; he described K Bank's high-interest offerings as unsustainable given its low profit margins.

The Ties Between Upbit and K Bank

The relationship between Upbit and K Bank has deepened significantly in recent months, particularly following a memorandum of understanding (MOU) signed by Dunamu, Upbit’s parent company, along with K Bank and BC Card.

This collaboration aims to create a cooperative digital financial services model that leverages the strengths of each entity—combining Upbit’s virtual asset trading platform, K Bank’s mobile banking capabilities, and BC Card’s payment processing systems.

While this partnership is intended to enhance South Korea’s digital financial ecosystem, it has also led to increased scrutiny regarding Upbit’s dominant position.

Chairman Kim recognized these concerns, indicating that the upcoming review of K Bank's listing process would include a thorough examination of the implications of its partnership with Upbit.

The Reaction from Regulatory Authorities

In response to the inquiries posed by Lee, Kim noted,

“I have a sense of the problem (about Upbit’s monopoly system).”

He assured that the Virtual Asset Committee will conduct an extensive review of Upbit's influence within the cryptocurrency market.

This proactive approach by the FSC highlights the urgency of the situation, as regulators aim to address the issues arising from the concentration of power in a single platform.

Lee emphasised the need for immediate action, asserting that the excessive concentration of deposits at K Bank due to Upbit’s activities is detrimental to the overall health of the financial system.

He pointed out that the implications of this concentration could not be ignored, given the potential repercussions for both the bank and its clients if Upbit were to face operational challenges.

This investigation highlights the delicate balance regulators must maintain in fostering innovation in the digital asset space while ensuring the stability and integrity of the broader financial system.

The scrutiny over Upbit and K Bank signifies a critical juncture for South Korea’s evolving cryptocurrency landscape, as regulators seek to establish safeguards against potential systemic risks.