Cryptocurrency exchange operators face audit amid money laundering concerns

Cryptocurrency exchange operator Bithumb's logo is seen in this photo. Yonhap

Financial authority to also examine digital finance businesses

By Kim Bo-eun

The country's major cryptocurrency exchange operators will come under inspection by the financial regulator for the first time, amid growing concern that the exchanges might have been used for money laundering.

Beginning next month, the Korea Financial Intelligence Unit (FIU) under the Financial Services Commission will be auditing Bithumb, Upbit, Coinone and Korbit, which are the top four operators in the cryptocurrency exchange market, examining whether they have anti-money laundering systems and other necessary measures in place.

With the Financial Supervisory Service, the FIU will look into whether the operators have made the improvements that it had demanded when they were registering as cryptocurrency businesses. The inspection will also verify whether the companies have adopted mandatory systems such as the "Know Your Customer (KYC)" process of identifying and verifying client identity when opening an account and maintaining this status over time. It will also examine whether the operators accurately report suspicious transactions.

Operators that do not meet the authorities' requirements will be subject to greater scrutiny in the latter half of the year. It will check whether the companies require currency transaction reports to prevent money laundering and whether they are complying with the "travel rule," which states providers of virtual assets need to collect and share customer data for transactions. The operators may face institutional penalties, dismissals of executives or a maximum fine of 100 million won ($84,000) per violation.

Naver Financial, Kakao Pay and Toss will also likely be examined by the FIU this year, as part of the probe into 124 businesses in digital finance. It is set to look into whether the companies have internal control systems in place, in addition to whether they are employing KYC processes and have other necessary measures in place.

In addition, the FIU will examine 60 private money lenders and nine casino operators on whether they are complying with regulations. Inspections of casino operators were suspended in recent years due to the COVID-19 pandemic.

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