South Korea Proposes Bank-Level Regulations for Crypto Exchanges Following Upbit Hack
South Korea is planning to impose bank-level liability standards on cryptocurrency exchanges, requiring them to compensate users for security breaches or system failures regardless of fault.
This move follows a significant breach at Upbit on November 27, in which 104 billion Solana-based tokens valued at 44.5 billion won ($36 million) were transferred to external wallets within 54 minutes.
The proposed draft legislation mandates crypto exchanges to implement IT security infrastructure plans and upgraded system standards. It also introduces fines for hacking incidents of up to 3% of an exchange's annual revenue, replacing the previous cap of 5 billion won.
In 2023 through September, five major exchanges — Upbit, Bithumb, Coinone, Korbit, and Gopax — recorded 20 system failures that affected more than 900 users and caused losses totaling 5 billion won. Six of these incidents occurred at Upbit alone, affecting over 600 victims and resulting in 3 billion won in damages.
Upbit was criticized for delaying notification to regulators after detecting the hack, taking more than six hours to disclose the breach. Allegations suggest that Dunamu, Upbit's operator, postponed disclosure until after its merger with Naver Financial, which finalized at 10:50 a.m. that day.
The Financial Intelligence Unit is also tightening anti-money laundering enforcement, imposing sanctions on major exchanges. Dunamu previously faced a fine of 35.2 billion won and a three-month suspension on new customer activity. Penalties related to AML violations are anticipated to reach hundreds of billions of won.
Regulatory measures include expanding the crypto travel rule to transactions under 1 million won, granting pre-emptive account-freezing powers, and barring individuals with certain criminal convictions from major shareholding positions in licensed platforms. These amendments are expected to take effect by early 2026, aligning South Korea's regulations with Financial Action Task Force (FATF) standards.
