Regulatory pressure and licensing shifts in South Korea

The end of the registration deadline

The Financial Intelligence Unit (FIU) enforcement of the Special Act regarding Information Security Management System (ISMS) certification and registration caused 34 exchanges to face total shutdown after the September 24 deadline. While 29 exchanges obtained ISMS certification, only Upbit successfully completed its registration with the FIU. This outcome leaves 25 ISMS-certified exchanges as crypto-only providers because they lack the bank partnerships required to offer Korean won trading. Most of these smaller players must rely on crypto-to-crypto trades since banks refuse to provide real-name verified accounts to smaller entities due to money laundering risks. You should remember that a bank partnership acts as the primary bottleneck for any exchange wanting to function in the domestic fiat market. Only four major exchanges maintain these essential banking ties: Upbit uses K Bank, Bithumb uses KB Kookmin Bank, Coinone uses Kakao Bank, and Korbit uses Shinhan Bank. Regulatory authorities also prepared for a February 2027 rollout of tokenized securities rules which mandate that companies managing customer accounts must maintain equity capital of at least 4 billion Korean won. These future rules also set a 100 million won annual net purchase limit for retail investors on over-the-counter debt trading exchanges.

Severe penalties for market leaders

Regulators actively penalize the largest market participants for failing to meet Anti-Money Laundering (AML) and Know Your Customer (KYC) obligations. The FIU notified Upbit of pending sanctions because an inspection uncovered 700,000 instances where the exchange failed to properly implement customer verification. Because Upbit controls more than 70% of the domestic market based on transaction volume, the FIU sanctions could restrict new customer operations for up to three months, which forces the regulator to directly manage the industry’s largest liquidity source. Upbit also faced scrutiny for operating with an unreported overseas business. Coinone also faced a 5.2 billion won fine and a three-month partial business suspension after the FIU found 70,000 cases of failed user verification and 10,000 transactions involving 16 unregistered foreign exchanges. The regulator also issued an official warning to Coinone CEO Cha Myung-hoon regarding these lapses. Bithumb previously received a 24 million dollar fine in March 2026 for similar compliance failures, and the privacy regulator recently fined Bithumb 210 million won for sending member IDs and order information to a foreign system without user consent.

Evolving market rules and stability

The Financial Services Commission (FSC) reviews whether to allow crypto market making to increase market efficiency. This follows price volatility caused by the JPYC stablecoin, which Upbit listed on September 17. Between September 17 and September 21, 21,219 investors purchased JPYC at premiums of 10% or more above the won-yen rate, spending 259.9 billion won in total. The FSC also considers moving core functions like order matching and listing oversight from self-regulation to public oversight. The Financial Services Commission also weighs guidelines that could let qualified public companies put no more than 5% of their equity capital into leading digital assets. New operational requirements for all registered providers include real-time user-asset reconciliation every five minutes and an automated kill switch to halt transactions if discrepancies appear. External audits of asset segregation and cold-storage ratios also move from a quarterly to a monthly schedule. The proposed Digital Asset Basic Act (DABA) includes a 100% reserve requirement for stablecoin issuers, with reserves held at banks or FSC-approved institutions. Will these tighter controls eventually push smaller, non-bank-partnered exchanges out of the market entirely?