Regulators prepare sweeping reforms that would require exchanges to fully compensate customers for losses, matching the strict standards applied to traditional banks.
South Korea is moving toward bank-level no-fault liability requirements for cryptocurrency exchanges, a major policy shift triggered by the recent security breach at Upbit. Regulators say the reform is necessary to close persistent gaps in consumer protection and strengthen oversight of the country’s fast-growing digital asset industry.
Government Pushes for Stronger Exchange Accountability
The Financial Services Commission is reviewing new rules that would require platforms to compensate users for losses caused by hacks or system failures, even in cases where the exchange is not directly at fault. This standard, currently applied to banks and licensed electronic payment firms, would mark the strictest liability framework South Korea has ever imposed on crypto operators.
The move follows the Nov. 27 Upbit incident, where more than 104 billion won worth of Solana-based tokens were transferred to external wallets in under an hour. The breach exposed significant weaknesses in both security operations and reporting procedures.
Regulators are also alarmed by widespread operational failures. Data submitted to lawmakers shows that the country’s five largest exchanges have suffered 20 system outages since 2023, affecting more than 900 users and causing over 5 billion won in losses. Upbit alone accounted for six failures and roughly 600 impacted customers.
Stricter Penalties and Higher Compliance Standards Expected
Under the proposed revisions, exchanges could face fines of up to 3% of annual revenue for security incidents, aligning penalties with those applied to traditional financial institutions. This would represent a sharp increase from the current 3.4 million-dollar cap.
Lawmakers have also questioned Upbit’s delayed disclosure of the breach. Although the hack was detected shortly after 5 a.m., the Financial Supervisory Service did not receive a report until nearly six hours later, prompting concerns over transparency and corporate responsibility.
Meanwhile, policymakers are demanding rapid progress on a national stablecoin regulatory framework, warning regulators that a draft must be delivered by Dec. 10 to ensure debate begins early in 2026.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.