All of South Korea’s Crypto Exchanges Fail their Regulatory Audits

Bithumb Exchange Regulation South Korea Upbit
Last updated:
Author
Author
Tim Alper
About Author

Tim Alper is a British journalist and features writer who has worked at Cryptonews.com since 2018. He has written for media outlets such as the BBC, the Guardian, and Chosun Ilbo. He has also worked...

Last updated:
Why Trust Cryptonews
Cryptonews has covered the cryptocurrency industry topics since 2017, aiming to provide informative insights to our readers. Our journalists and analysts have extensive experience in market analysis and blockchain technologies. We strive to maintain high editorial standards, focusing on factual accuracy and balanced reporting across all areas - from cryptocurrencies and blockchain projects to industry events, products, and technological developments. Our ongoing presence in the industry reflects our commitment to delivering relevant information in the evolving world of digital assets. Read more about Cryptonews

South Korean crypto exchanges have been dealt another crushing blow – with all of the nation’s trading platforms failing their regulatory “consulting” audits.

south korea regulatory blow
Source: Adobe Stock/ michaklootwijk

The development will not bode well for the sector with just over a month to go until new regulations kick in – with even the “big four” exchanges (Korbit, Bithumb, Upbit and Coinone) failing their audits.

As previously reported, in June, the regulatory Financial Services Commission (FSC) teamed up with a number of government ministries and state-owned IT firms to conduct a “complete investigation of corporate accounts,” as well as exchanges’ “coin management and investor protection” protocols.

The FSC also drafted in police officers and a number of external contractors from the private sector – including security experts and network specialists.

But per the Hankook Ilbo and the Hankyroreh, the number of exchanges that “passed” their audit “tests” was a big fat zero.

In July, the auditing process uncovered the fact that a number of exchanges were using “fake” or fraudulent banking operations – with a number of cases referred to the prosecution service.

But the “fake” banking offenders were mostly smaller trading platforms. And many in the sector had expected the heavily backed likes of Upbit and co to pass the audit with flying colors – such has been their zeal to comply with regulators’ wishes and remain trading after September 24, when all exchanges will become directly answerable to the FSC and its Financial Intelligence Unit (FIU) agency.

The FSC found that out of 33 exchanges, only 25 had gained information security management system accreditation, while anti-money laundering protocols were still “lacking” at most exchanges. They also noted that none of the trading platforms had obtained the required real name-authenticated banking contracts they will need to continue doing business after September 24.

The auditors added that in numerous instances there were “no or insufficient” staff assigned to AML, while risk management system resources were also “insufficient.”

The regulator added that in “many businesses” there were “no standards” in place for listing or delisting tokens, with inadequate fraud detection systems and a lack of tools to help detect incidents of possible price manipulation and insider trading.

The FSC also reported that there were cases whereby exchanges “mixed” the management of customer deposits and cryptoassets “without distinguishing” between the fiat and coins owned by customer and the company itself. In many cases, it remarked, there were insufficient staff resources to deal with sudden spikes in exchange users or trading volumes.

Banks have previously warned that only the “big four” could be left standing at the end of September – but some might argue that even this doom-laden prediction is starting to look somewhat optimistic.

____

Learn more:
Smaller South Korean Crypto Exchanges Begin to Shutdown, Suspend Services
Crypto Exchange Self-Regulation Kicks In as Regulators Start to Kick

Regulator Identifies ‘Fake’ Crypto Exchange Bank Accounts
Signs of a Crypto Regulatory Climbdown from South Korea’s Ruling Party

S Korean Regulator to Force Crypto Overseas Exchanges to Abide by its Rules
Korbit Reopens Offline Customer Service Center in Seoul’s Busy Gangnam

More Articles

Price Analysis
7,8% Growth in the Last 24h: Is PI on the Way Back?
Arslan Butt
Arslan Butt
2025-03-22 12:02:26
Price Analysis
Bulls to Reclaim $2K Threshold: Big Trend Shift for Ethereum?
Arslan Butt
Arslan Butt
2025-03-22 11:25:57
Crypto News in numbers
editors
Authors List + 66 More
2M+
Active Monthly Users Around the World
250+
Guides and Reviews Articles
8
Years on the Market
70
International Team Authors