South Korea Targets KuCoin, BitMEX for Non-Compliance with VASP Rules

South Korean authorities have intensified their scrutiny on cryptocurrency exchanges, with a particular focus on KuCoin and BitMEX. The Financial Intelligence Unit (FIU) of the Financial Services Commission is considering sanctions against these exchanges for allegedly operating in the country without reporting as virtual asset service providers (VASPs) to the appropriate regulators. This move is part of a broader effort to enforce stricter compliance measures and protect investors from potential fraud and market manipulation.

The FIU is investigating a list of exchanges, including BitMEX, KuCoin, CoinW, Bitunix, and KCEX, which have allegedly provided services to South Korean investors without the appropriate VASP reports. These exchanges are reported to have offered marketing and customer support to Korean investors without going through the country’s compliance process. Under South Korean laws, operators of crypto sales, storage, brokerage, and management are required to report to the FIU. Failure to comply can result in criminal penalties and administrative sanctions.

An FIU official stated that measures to block access to the exchanges included in the list are being reviewed. The financial regulator is currently consulting with the Korea Communications Standards Commission, the regulator in charge of the internet, on how they can block access to the exchanges. This consultation highlights the seriousness with which South Korean authorities are approaching the enforcement of their regulatory framework.

In addition to foreign exchanges, South Korean crypto exchanges are also facing scrutiny over suspicions and rumors of financial misconduct. On March 20, prosecutors raided Bithumb following suspicions that its former CEO, Kim Dae-sik, embezzled company funds to purchase an apartment. The authorities suspect that the exchange and its executive may have violated some financial laws during the apartment purchase. However, Bithumb responded that Kim had already taken a loan to repay the funds.

Rumors have also surfaced about intermediaries getting paid to list projects on Bithumb and Upbit. These allegations suggest that projects may have paid intermediaries millions to get listed on the exchanges. Upbit responded to these rumors by demanding that the media outlet disclose the list of digital asset projects that paid brokerage fees. This demand underscores the exchanges' commitment to transparency and accountability in their operations.

South Korea's regulatory actions are expected to have a significant impact on the operations of these exchanges in the region. The crackdown underscores the country's commitment to maintaining a secure and transparent cryptocurrency market, despite the challenges posed by the decentralized nature of digital assets. The regulatory measures are likely to lead to changes in the business practices and compliance strategies of the affected exchanges, ensuring greater adherence to local regulations and protecting the interests of investors.