Michaela
South Korea has reportedly moved to hold cryptocurrency exchanges to the same standards as traditional banks, introducing no-fault compensation rules and stricter regulatory oversight. The push comes after a recent security breach at the country’s major exchange, Upbit, spotlighting gaps in consumer protection and compliance within the growing crypto market.
Key Points
- South Korea is proposing no-fault compensation rules for crypto exchanges, aligning them with bank standards.
- Proposed fines could reach 3% of annual revenue, much higher than current limits.
- Upbit and other major exchanges have experienced multiple system failures, highlighting regulatory gaps.
According to the Korea Times, South Korea’s Financial Services Commission (FSC) is reviewing rules that would require cryptocurrency exchanges and other virtual asset providers to compensate users for losses caused by hacks or system failures, even if the platform is not found at fault. Currently, this no-fault standard applies to financial institutions and electronic payment firms.
The FSC’s push follows a late November hack at Upbit, where over 104 billion Solana-based tokens, valued at around $30 million, were moved to external wallets in under an hour. Reports indicate that more than 900 users were affected, and under current regulations, Upbit has not been required to provide compensation.
The FSC’s proposed regulations aim to hold cryptocurrency exchanges accountable for compensating users affected by hacks or system failures, aligning their responsibilities with those of traditional financial institutions. The initiative comes amid a series of recent operational disruptions across the crypto sector.
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Lawmakers are reviewing draft legislation that would impose stricter regulations on cryptocurrency exchanges, including mandatory IT security plans, enhanced system and personnel standards, and harsher penalties.
Under the proposed revisions, exchanges could face fines of up to 3 percent of their annual revenue for hacking incidents, aligning them with the standards applied to traditional financial institutions. Currently, the maximum penalty for crypto platforms is limited to 5 billion won, about $3.7 million.
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According to data by the Financial Supervisory Service (FSS) that was submitted to lawmakers, five major crypto exchanges, Upbit, Bithumb, Coinone, Korbit, and Gopax, have recorded 20 system failures from 2023 through September this year, with Upbit accounting for six incidents, with more than 600 victims reportedly suffering a combined 3 billion won or approximately $2.22 million in losses.
Additionally, some lawmakers from the ruling party have alleged that Upbit delayed disclosing the breach, only reporting it hours later, following the completion of Dunamu’s planned merger with Naver Financial.
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MICHAELA
Michaela is a news writer focused on cryptocurrency and blockchain topics. She prioritizes rigorous research and accuracy to uncover interesting angles and ensure engaging reporting. A lifelong book lover, she applies her passion for reading to deeply explore the constantly evolving crypto world.
