Korean version of Silicon Valley Bank Crisis! Upbit and K-Bank Under Investigation by South Korean Financial Services Commission

The Financial Services Commission of South Korea recently stated that it will investigate the monopoly issue of the cryptocurrency exchange Upbit. Upbit, one of the top ten cryptocurrency exchanges globally, started a partnership with K-Bank in June 2020, becoming the designated bank for Upbit. This collaboration not only boosted the user base of K-Bank but also positioned Upbit as a primary choice for local cryptocurrency investors.

The investigation was triggered by the fact that a significant portion of K-Bank's deposits came from Upbit users. While the partnership between the two entities facilitated market liquidity, it also brought risks related to stability, concentration, and compliance. This has drawn high scrutiny from the South Korean Financial Services Commission and sparked discussions in the industry about whether there should be a separation between financial institutions and technology companies.

K-Bank's Overreliance on Upbit for Fund Flow Poses Concentration Risk

The Financial Services Commission of South Korea stated that as the collaboration between Upbit and K-Bank expands, Upbit's monopoly in the South Korean cryptocurrency market becomes more apparent. It was also mentioned that 20% of the deposits in K-Bank come from Upbit users, indicating a significant reliance of K-Bank on fund flow from Upbit. If Upbit were to face a major crisis, K-Bank would be the first to bear the brunt, potentially triggering severe financial issues.

Interest on Upbit Deposits Exceeds K-Bank's Net Profit, South Korean Lawmaker Questions Rationality

A South Korean Democratic Party lawmaker raised doubts about the rationality of K-Bank providing 2.1% interest on Upbit deposits while its net profit is around 1%.

He added that the cooperation between K-Bank and Upbit may also violate South Korea's principle of "separation of industry and finance," posing a risk to K-Bank's stability.

In response, the Chairman of the Financial Services Commission mentioned that K-Bank underwent a comprehensive review before its listing, but the commission will further examine the potential risks brought by such cooperation through the cryptocurrency committee to ensure financial stability. Upbit has not responded to this issue yet.

Note: The principle of separation of industry and finance refers to the policy of keeping industry and finance separate, setting limits on industrial ownership of financial institutions to prevent undue control and safeguard financial neutrality, avoiding conflicts of interest.

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