South Korea's Second-Largest Crypto Exchange Faces Six-Month Partial Shutdown

South Korea's Financial Intelligence Unit (FIU) issued a preliminary sanction notice to Bithumb, the country's second-largest cryptocurrency exchange, on March 9, accusing it of systemic anti-money laundering (AML) compliance deficiencies. The investigation highlighted three major issues: first, weak AML control mechanisms and superficial Know Your Customer (KYC) processes; second, continuous transactions with unregistered overseas virtual asset platforms, significantly increasing the risk of money laundering; and third, failure to report suspicious transaction activities to regulators in a timely and complete manner.

These are not isolated errors, but rather reflect the failure of its compliance system in multiple aspects simultaneously. Regulators emphasized that this multiple failure constitutes a structural risk, far exceeding general operational oversights, and therefore targeted measures were taken: suspending the new users’ withdrawal function, aiming to curb the rapid outflow of funds—which is the core monitoring objective of the anti-money laundering framework. This restriction is not a complete shutdown, but a precise strike, striving to maintain the platform's basic operations while controlling risks.

In addition, the FIU also recommended issuing a formal warning to the CEO of Bithumb. According to Korean financial regulations, such warnings may affect his future qualifications for positions in the financial industry, meaning that the penalty is directed at individual responsibility, rather than just the company. The timing of this regulatory action has aroused widespread concern. Just two months prior, in February 2026, Bithumb mistakenly distributed hundreds of millions of dollars worth of Bitcoin to users due to a system failure, which shocked the market and quickly aroused high attention from the government. Although it is not yet clear whether the accident triggered the investigation, the close temporal association between its occurrence and subsequent sanctions has formed an unfavorable public opinion and regulatory narrative for the platform. According to industry speculation, the final fine amount may be as high as trillions of Korean won, or more than $25 million, which is expected to be on par with the previous penalty record set by Upbit, South Korea's largest exchange. The successive heavy penalties faced by the two leading platforms mark South Korea's unprecedented efforts to strengthen compliance supervision of the crypto industry, and a reshuffle of the industry has quietly begun.