South Korea is set to introduce bank-level, no-fault liability regulations for crypto exchanges, aligning them with the standards of traditional financial entities in response to the recent breach at Upbit.
The Financial Services Commission (FSC) is assessing new regulations that would stipulate exchanges must reimburse customers for losses resulting from hacks or system failures, even if the exchange is not responsible, as reported by The Korea Times on Sunday, citing officials and market analysts.
Currently, the no-fault compensation system only applies to banks and electronic payment providers under Korea’s Electronic Financial Transactions Act.
This regulatory initiative follows a Nov. 27 incident with Upbit, run by Dunamu, during which over 104 billion Solana-based tokens—valued at around 44.5 billion won ($30.1 million)—were transferred to external wallets in less than an hour.
Related: Do Kwon maintains that a five-year U.S. sentence suffices as he confronts 40 years in South Korea
Crypto exchanges to undergo bank-level oversight
Regulators are also responding to a trend of frequent outages. Data reported to lawmakers by the Financial Supervisory Service (FSS) indicates that South Korea’s five major exchanges—Upbit, Bithumb, Coinone, Korbit, and Gopax—experienced 20 system failures since 2023, impacting over 900 users and resulting in more than 5 billion won in total losses. Upbit specifically reported six outages affecting 600 customers.
The impending legislative changes are expected to enforce stricter IT security protocols, enhanced operational standards, and more severe penalties. Lawmakers are considering a regulation allowing fines of up to 3% of annual revenue for hacking incidents, akin to the threshold imposed on banks. At present, crypto exchanges face a maximum fine of $3.4 million.
The Upbit hacking incident has also attracted political attention due to delayed notification. Although the hack was detected shortly after 5 a.m., the exchange did not inform the FSS until nearly 11 a.m. Some lawmakers claim the delay was deliberate, occurring shortly after Dunamu finalized a merger with Naver Financial.
Related: South Korea targets crypto transfers below $680 in a major AML effort
South Korea advocates for stablecoin legislation
As reported by Cointelegraph, South Korean lawmakers are urging financial regulators to present a draft stablecoin bill by Dec. 10, cautioning they will proceed without government involvement if the timeline is not met.
The ruling party’s ultimatum follows sluggish advancements and repeated delays, as officials aim to bring the bill for discussion during the National Assembly’s extraordinary session in January 2026.
Magazine: 2026 promises to be the year of pragmatic privacy in crypto — Canton, Zcash, and more
