South Korea’s Financial Supervisory Services  will cooperate with the country’s Financial Services Commission, and the Korean Financial Intelligence Unit regarding UpBit’s balance sheet. Currently UpBit is the biggest virtual currency exchange in South Korea. The reason for the investigation is to get to the bottom of UpBit’s potential liquidity issues.

The Financial Supervisory Services last week disclosed that a task force had been formed with the aim of investigating illegal and irregular practices of virtual currency exchanges. The regulatory body will be continuing its examination of the exchange which may have duped investors by falsely pretending to own funds or cryptocurrency that were deposited to their platforms.

Inflation of digital currency holdings

Earlier in a press conference the Financial Supervisory Services placed an emphasis on the fact that it is an illegal act for virtual currency exchanges to engage in the act of inflating their digital currency holdings. Additionally the Financial Supervisory Services said that digital currency exchanges are not allowed to engage in the processing of transactions or trades on their clients’ behalf without ensuring that they actually move the funds.

According to the Financial Supervisory Services a virtual currency exchange is not permitted to state that it has moved clients’ funds unless those virtual currency funds have been recorded on the blockchain network. For instance if a virtual currency exchange such as Bithumb or UpBit made the claim that it held client funds amounting to over $6 billion, such an exchange must provide proof via audit reports that the exchange indeed holds that amount.

Publicly listed crypto exchange

At the moment South Korea’s biggest virtual currency exchange is Bithumb. The crypto exchange is the only one across the globe to be publicly listed. last year in December the amount of client funds that Bithumb held was over $6 billion.

This comes in the wake of UpBit being raided by the country’s regulators due to suspicion of  fraudulent activities. Towards the end of last year the crypto exchange was embroiled in controversy over failure to support self-regulation of the sector. According to reports UpBit is suspected of selling virtual coins to non-customers.