Stricter Regulations for Customer Protection
South Korea is planning to implement stringent regulations for cryptocurrency exchanges, aiming to hold them to the same standards as traditional banks. This initiative is designed to enhance customer protection in the digital asset market.
The proposed rules come in response to significant security breaches, including a major hack at the Upbit exchange, and several operational system failures experienced by the country's leading exchanges. A key aspect of the new regulations would require exchanges to compensate users for losses, even in situations where the exchange is not directly at fault.
New Framework for Crypto Exchanges
The Financial Services Commission (FSC) is actively developing new rules that will mandate crypto exchanges to cover customer losses stemming from hacks or system malfunctions, regardless of direct liability. This "no-fault" compensation model is currently applied to banks and electronic payment providers under South Korea's Electronic Financial Transactions Act.
Anticipated legislative revisions are expected to introduce enhanced IT security requirements, more rigorous operational standards, and significantly increased penalties for security breaches. Currently, crypto exchanges face a maximum penalty of $3.4 million. Lawmakers are considering imposing fines of up to 3% of a crypto exchange's annual revenue for security breaches, mirroring the penalties applicable to banks.
These proposed measures are part of South Korea's broader strategy to regulate the rapidly evolving digital asset industry. In September, the FSC announced plans to introduce new regulations specifically for crypto lending platforms, with the objective of improving consumer protection and market transparency.
Impact of Upbit Hack and Exchange Failures
Recent data from the Financial Supervisory Service (FSS) highlights the growing regulatory scrutiny on crypto exchanges. Since 2023, South Korea's five major exchanges – Upbit, Bithumb, Coinone, Korbit, and Gopax – have collectively reported 20 system failures. These incidents affected over 900 users and resulted in total losses exceeding 5 billion won.
Upbit, in particular, experienced six of these incidents, impacting 600 customers. These repeated system problems underscore persistent technical vulnerabilities within the nation's cryptocurrency trading platforms.
A significant event occurred in November when hackers stole over 104 billion Solana tokens from an Upbit wallet. The stolen tokens, valued at approximately 44.5 billion won ($30.1 million), were transferred to other wallets within an hour. This hack served as a stark reminder of the inherent risks in the cryptocurrency sector and intensified calls for more robust regulatory oversight.
Political Scrutiny and Legislative Efforts
The Upbit hack also attracted political attention due to the reported delay in its notification to the FSS. While the breach occurred shortly after 5 a.m., the exchange did not inform the FSS until around 11 a.m. This delay led some lawmakers to suggest it might have been intentional, potentially coinciding with Dunamu's merger with Naver Financial.
In parallel, lawmakers are urging regulators to finalize a draft stablecoin bill by December 10. They have indicated a willingness to advance the legislation independently if the government misses this deadline. The aim is to bring the bill before the National Assembly for debate in January 2026, following previous delays in its progress.