[Executive Summary]

• The Financial Intelligence Unit (“FIU”) under the Financial Services Commission has conducted the first comprehensive inspection of virtual assets service providers (“VASP”) in Korea and issued an administrative disposition of "Caution" to Gopax and Coinone. The VASPs are expected to be faced with administrative fines of hundreds of million KRW. It has been reported that the administrative action was due to insufficiencies in the AML process and the KYC process under the Act on Specified Financial Transaction Information.

The Financial Intelligence Unit (“FIU”) under the Financial Services Commission has conducted the first comprehensive inspection of virtual assets service providers (“VASP”) in Korea and issued an administrative disposition of "Caution" to Gopax and Coinone. The VASPs are expected to be faced with administrative fines of hundreds of million KRW.

According to sources in the virtual assets industry, the FIU recently held sanctions review committee and decided on the level of sanctions on Gopax and Coinone. The FIU, through on-site inspections, extracted 20-something insufficiencies and inadequacies in the establishing, operating or supplementing documents of the AML systems under the Act on Specified Financial Transaction Information. It has been reported that the level of sanctions was decided after considering the explanatory/defense materials from each of the VASPs.

Due to insufficiencies in the AML process and the KYC process under the Act on Specified Financial Transaction Information, it is expected for Gopax to be faced with an administrative fine of tens of million KRW and Coinone with an administrative fine of hundreds of million KRW, while the CEOs of both VASPs and the employees in charge are expected to be sanctioned with the administrative disposition of “Caution” or “Reprimand.”

Meanwhile, the comprehensive inspection of virtual assets exchanges of the FIU had been conducted in the order of Coinone, Gopax, Korbit, Upbit, and Bithumb. Therefore, it can be deduced that the results of the inspections of Coinone and Gopax have come out first. It is expected for the sanctions review committee for Upbit to be held in the near future.

Since the FIU started its initial thorough examination of the VASPs in Korea, stricter and more stringent policies regarding the VASPs are anticipated, particularly on adherence to AML and KYC processes. It is crucial to keep an eye on the further development of the issue and prepare for any policy changes on virtual asset exchanges, such as performing additional KYC on certain market participants.