The Financial Supervisory Service (FSS) of South Korea will assist the Korean Financial Intelligence Unit (KIU) and Financial Services Commission (FSC) in evaluating the balance sheet of UPbit, the country’s largest cryptocurrency exchange. The regulators will also review existing regulations on cryptocurrency exchanges in the country.
The investigation is related to potential liquidity issues at UPbit. Regulators are not looking to charge UPbit for criminal or illicit activities, according to media reports citing insiders.
Last week, the FSS stated that it had officially formed a task force to investigate irregular and illegal practices of cryptocurrency exchanges. FSS will contribute to the investigation into UPbit and continue to examine existing exchanges that may have deceived investors by pretending to own cryptocurrencies or funds deposited to the exchange.
In an earlier press conference, FSS emphasized that it is illegal for cryptocurrency exchanges to inflate their holdings in cryptocurrencies and exchanges are not permitted to process trades or transactions on behalf of clients without actually moving the funds.
The FSS said that an exchange is not allowed to claim it has moved the funds of its clients unless the funds in cryptocurrencies are actually broadcasted to the blockchain network and officially transferred. If an exchange like UPbit or Bithumb claims to have more than US$6 billion of client funds, the exchanges must be able to prove through audit reports that they do hold US$6 billion.
Bithumb is the second largest cryptocurrency exchange in South Korea, and also the only exchange in the world listed on a public stock market. As of December 2017, Bithumb held more than US$6 billion in client funds.