South Korea is reportedly preparing to enforce stringent, bank-grade, no-fault liability rules on crypto exchanges, thereby placing them on the same playing field as traditional financial institutions. This significant move comes in the wake of the recent security breach at Upbit, a popular South Korean cryptocurrency exchange.
According to officials and market analysts cited by The Korea Times, the country’s Financial Services Commission (FSC) is currently evaluating new regulations that would mandate cryptocurrency exchanges to indemnify their customers for losses incurred from system failures or cyberattacks, regardless of whether the platform is to blame. The no-fault compensation model presently applies exclusively to banks and electronic payment companies under the South Korean Electronic Financial Transactions Act.
Regulatory Action in Response to Upbit Breach
Last month, Upbit, operated by Dunamu, was embroiled in a significant security incident. More than 104 billion Solana-based tokens, equivalent to approximately 44.5 billion won ($30.1 million), were transferred to external wallets in less than an hour. This incident has resulted in intensified regulatory pressure.
There has also been an increase in the number of outages amongst South Korean cryptocurrency exchanges. The Financial Supervisory Service documented system failings reported by the country’s five major exchanges – Upbit, Bithumb, Coinone, Korbit, and Gopax since 2023, affecting more than 900 users and resulting in over 5 billion won in aggregate losses. Out of these, Upbit alone reported six system failures that affected 600 of its customers.
Stricter Regulations and Penalties on the Horizon
Given these events, an upcoming legislative revision is anticipated to prescribe stringent IT security prerequisites, elevated operational standards, and harsh penalties for non-compliance. Lawmakers are contemplating a rule that would authorize penalties of up to 3% of the annual revenue in the event of hacking incidents, analogous to the current standard employed for banks. At present, cryptocurrency exchanges, in contrast, face a maximum fine of just $3.4 million.
The Upbit security breach has further invited political examination concerning its delayed reporting. Despite detecting the hack shortly after 5 am, the exchange did not apprise the Financial Supervisory Service until nearly 11 am. This delay has sparked allegations that it was deliberate, occurring shortly after Dunamu finalized a merger with another financial entity, Naver Financial.
Proposed Stablecoin Bill Stirs Debate
South Korean lawmakers are also pressuring the financial regulators to release a draft of the stablecoin bill by as early as Dec. 10. If the regulators fail to meet this deadline, the lawmakers have warned they will proceed without government involvement. The ultimatum arises from the slow progress and recurrent delays, with officials expressing their desire to present the bill for debate during the National Assembly’s extraordinary session in January 2026.
As the events unfold, South Korea’s cryptocurrency market is quickly evolving, with more intense oversight and regulatory measures being considered. These revisions are designed to enhance customer protection and instill higher trust in digital currency transactions. This signifies both challenges and opportunities for the cryptocurrency industry as a whole, and only time will show how they will adapt to these novel changes.
