South Korea’s Upbit Under Regulatory Watch Over Market Monopoly Concerns

Key Takeaways

• As of June 2024, Upbit deposits at K-Bank reached 4 trillion won, accounting for almost 20% of K-Bank’s total deposits
• The Financial Services Commission (FSC), confirmed that it would launch a thorough investigation into the matter

On October 10, during a National Assembly audit, South Korean lawmaker Lee Kang-il expressed concerns about the overwhelming market dominance of Upbit, the country’s largest cryptocurrency exchange, and its close partnership with K-Bank, an internet-only bank. Lee warned that this concentration of power could lead to significant financial risks, particularly if there were disruptions in Upbit’s operations.

Upbit controls about 80% of South Korea’s cryptocurrency market, making it a significant player not only domestically but also globally as the second-largest spot crypto trading platform. Lee highlighted that Upbit’s influence is tied closely to its relationship with K-Bank. As of June 2024, Upbit deposits at K-Bank reached 4 trillion won, accounting for roughly 20% of the bank’s total deposits of 22 trillion won.

The lawmaker raised concerns about K-Bank’s dependence on Upbit deposits, noting that the bank offers a high interest rate of 2.1% on these funds, despite having a low-profit margin of under 1%. Lee argued that this arrangement might violate South Korea’s principle of separating finance and industry, warning of potential negative outcomes. “If Upbit were to face operational issues, K-Bank could face a bank run,” Lee said, pointing to the risks of having such a large portion of the bank’s deposits tied to the crypto exchange.

With K-Bank preparing for an initial public offering (IPO), the concerns grow even more pressing. Lee emphasized that the strong financial connection between Upbit and K-Bank creates a fragile situation, especially with K-Bank’s reliance on Upbit deposits as it heads into the public market.

In response, the Financial Services Commission (FSC), South Korea’s financial regulatory body, confirmed that it would launch a thorough investigation into the matter. FSC Chairman Kim Byoung-hwan acknowledged the concerns raised during the parliamentary session and stated that the Virtual Assets Committee would closely review Upbit’s market position and its influence over K-Bank.

The investigation comes at a time when South Korea is tightening its grip on the crypto sector, implementing stricter anti-money laundering regulations, insurance mandates and penalties for non-compliance. The country’s Virtual Asset Users Protection Act, introduced in June 2024, requires virtual asset service providers to hold at least 80% of users’ assets in cold storage.