South Korea Plans to Hold Crypto Exchanges to Bank-Level Liability Standards

South Korea’s financial regulators are poised to implement a sweeping overhaul of the cryptocurrency exchange landscape, proposing new rules that would hold digital asset platforms to the same rigorous “no-fault liability” standards currently applied to traditional banks and electronic payment services. 

That significant legislative push, spearheaded by South Korea’s Financial Services Commission (FSC), aims to dramatically enhance consumer protection in the burgeoning crypto sector, following a series of high-profile security breaches and system failures, most notably a recent incident involving Upbit, one of the nation’s largest exchanges.

The proposed amendments, currently under review by the FSC, would fundamentally shift the burden of responsibility for customer losses. 

Under the new provisions, crypto exchanges would be legally required to compensate users for financial damages resulting from hacks or system outages, even in scenarios where the platform itself is not directly deemed at fault. 

The no-fault compensation model, a cornerstone of consumer protection in established financial industries, is articulated within South Korea’s Electronic Financial Transactions Act, and its extension to crypto exchanges suggests a growing commitment to institutionalize the digital asset market and bring it into closer alignment with the traditional financial ecosystem.

A Catalyst for Change: The Upbit Incident

The urgency behind South Korea’s regulatory reform has been acutely amplified by a significant security breach that occurred on Nov. 27. Upbit, operated by Dunamu, experienced an unauthorized transfer of approximately 104 billion Solana-based tokens. 

The stolen assets, valued at an estimated 44.5 billion won (approximately $30.1 million USD), were moved to external wallets in a rapid succession of transactions that unfolded in under an hour. The scale and speed of this incident sent ripples through the South Korean crypto community, igniting immediate calls for more robust protective measures and accountability from exchanges.

While the Upbit breach stands as a recent and prominent catalyst, it is not an isolated event. Data compiled and submitted to lawmakers by the Financial Supervisory Service (FSS) reveals a disconcerting pattern of operational instability across the country’s major crypto platforms. 

Since the beginning of 2023, the five leading exchanges – Upbit, Bithumb, Coinone, Korbit, and Gopax – have collectively reported 20 system failures. These outages have impacted more than 900 users and led to combined financial losses exceeding 5 billion won. 

Upbit alone, despite its market prominence, accounted for six of those failures, affecting approximately 600 customers. 

South Korea Elevating Security and Operational Standards

In response to the demonstrated vulnerability, the forthcoming legislative revisions are expected to usher in a new era of heightened requirements for crypto exchanges. These will encompass stricter mandates for information technology (IT) security protocols, demanding investment in advanced cybersecurity infrastructure and practices designed to thwart sophisticated attacks. 

Furthermore, higher operational standards will be imposed, aiming to minimize system failures, enhance service reliability, and ensure quicker, more effective responses to technical issues.

Crucially, the proposed framework also introduces significantly tougher penalties for non-compliance and security breaches. 

Lawmakers are reportedly considering a rule that would allow for fines of up to 3% of an exchange’s annual revenue in the event of hacking incidents. This penalty structure mirrors the thresholds currently applied to traditional banks, signifying a deliberate intent to align crypto exchange accountability with that of established financial institutions. 

That represents a drastic increase from the current maximum fine of approximately $3.4 million, reflecting a clear message from regulators that the cost of security lapses will be substantially higher going forward. 

The intent is to incentivize proactive measures and robust defenses, rather than simply penalizing after the fact, ultimately protecting consumer funds with a more institutionalized approach to risk management.

Broader Regulatory Landscape

The move to impose bank-level liability on crypto exchanges is not an isolated initiative but part of a broader, more comprehensive regulatory push in South Korea’s digital asset sector. 

The government has been actively exploring various avenues to bring clarity, stability, and security to the market. For instance, South Korean lawmakers have also been pressing financial regulators to deliver a draft stablecoin bill by Dec. 10. 

The ruling party has issued an ultimatum, signaling its intent to proceed with legislation independently if the government misses this deadline, showing the political will to accelerate regulatory development in this area. 

Officials hope to bring the stablecoin bill to debate during the National Assembly’s extraordinary session in January 2026.