South Korea to Enforce Bank-Level Liability on Crypto Exchanges Following Upbit Incident

South Korea is set to introduce regulations that would enforce bank-level liability on cryptocurrency exchanges, requiring them to compensate users for losses related to hacks or system failures, irrespective of fault. This move comes in light of a significant hack at Upbit, where over 104 billion Solana-based tokens were stolen.

Key Takeaways

South Korea's Financial Services Commission (FSC) plans to hold crypto exchanges accountable to the same standards as traditional banks.
Proposed regulations will enforce no-fault compensation for customers in cases of hacks.
The Upbit breach has highlighted ongoing issues with system failures among major exchanges.
New legislation may impose stricter IT security measures and higher penalties for hacking incidents.

South Korea to impose bank-level liability on crypto exchanges after Upbit hack: Report

South Korea Implements Bank-Level Oversight for Crypto Exchanges

In response to the recent security breach at Upbit, South Korea is gearing up to enforce regulations that would impose bank-level, no-fault liability on cryptocurrency exchanges. This means that exchanges will be held accountable for compensating users for losses due to hacking incidents or system failures, even if these incidents are not the exchanges' fault, as reported by The Korea Times.

This no-fault compensation model is currently a requirement only for banks and electronic payment firms as outlined in Korea’s Electronic Financial Transactions Act.

Addressing System Failures Among Crypto Exchanges

The regulatory initiative follows a significant incident on November 27, when Upbit, operated by Dunamu, experienced a hacking breach that involved the transfer of more than 104 billion Solana-based tokens. The total value of these stolen assets is estimated to be around 44.5 billion won ($30.1 million).

Regulators are also responding to a concerning trend of frequent system failures among the country's largest exchanges, including Upbit, Bithumb, Coinone, Korbit, and Gopax. Reports presented to lawmakers by the Financial Supervisory Service (FSS) indicate that these exchanges have encountered 20 system failures in 2023, impacting over 900 users and leading to losses exceeding 5 billion won. Notably, Upbit alone recorded six of these failures, affecting approximately 600 customers.

With the upcoming legislative revisions, we can expect stricter IT security requirements and higher operational standards, along with tougher penalties. Lawmakers are now considering a rule that would impose fines of up to 3% of an exchange’s annual revenue in the event of a hacking incident, mirroring the penalty structure currently applied to banks. Presently, crypto exchanges can face a maximum fine of $3.4 million.

The recent breach at Upbit has also drawn attention from politicians due to the delay in reporting the incident. While the breach was detected shortly after 5 a.m., the exchange did not inform the FSS until nearly 11 a.m. This delay has led some lawmakers to suggest that it was intentional and occurred just minutes after Dunamu completed a merger with Naver Financial.

South Korea Advances Legislation on Stablecoins

In addition to focusing on exchange regulations, South Korean lawmakers are urging financial regulators to finalize a draft for a stablecoin bill by December 10. They have indicated that if the government fails to meet this deadline, they will proceed independently with the legislation. The ruling party’s push stems from ongoing slow progress and multiple delays, with officials hoping to bring the stablecoin bill to discussion during the National Assembly's extraordinary session scheduled for January 2026.