South Korea to Impose Bank-Level Liability on Crypto Exchanges After Upbit Hack

• South Korea plans to require crypto exchanges to compensate customers for losses even when the exchange is not at fault, mirroring bank standards.
• The move follows a major Upbit breach involving ₩44.5 billion ($30M) in stolen assets.
• Regulators cite 20 system failures across major exchanges since 2023, affecting over 900 users.
• New rules may include fines up to 3% of annual revenue, significantly higher than today’s penalty cap.
• Lawmakers also demand a stablecoin bill by Dec. 10, warning they may move forward without regulatory input.

South Korea moves to hold crypto exchanges to bank-level liability standards

South Korea is preparing a major regulatory overhaul that would require crypto exchanges to compensate users for losses caused by hacks or system failures — even when the exchange is not directly at fault. According to The Korea Times, the Financial Services Commission (FSC) is reviewing new provisions inspired by the no-fault liability model currently imposed on banks under the Electronic Financial Transactions Act.

If the rules move forward, crypto exchanges would be held to the same standard as traditional financial institutions for consumer protection, establishing one of the strictest regulatory frameworks for digital asset platforms globally.

The push for stronger rules gained momentum after a Nov. 27 incident involving Upbit, the country’s largest exchange. More than 104 billion Solana-based tokens — roughly ₩44.5 billion ($30.1M) — were transferred to external wallets in less than an hour.
The event exposed significant gaps in incident response, consumer protection, and security oversight.

Recurring system failures fuel regulatory urgency

Regulators are not only reacting to the hack — they are responding to a broader pattern of operational failures. Data from the Financial Supervisory Service (FSS) reveals:

• 20 system failures across major exchanges since 2023
• More than 900 users affected
• Over ₩5 billion (millions of dollars) in combined losses
• Upbit alone reported six failures, impacting 600 customers

Lawmakers argue that exchanges handling retail funds must maintain infrastructure and security standards comparable to those expected of banks and payment processors.

The upcoming legislative revision is expected to demand:

• Stronger IT and cybersecurity requirements
• Higher operational and reporting standards
• Detailed internal controls
• Penalties of up to 3% of annual revenue for hacking incidents

This would replace the current fixed maximum fine of $3.4 million, which regulators say is insufficient for motivating large exchanges to improve their security measures.

The Upbit breach drew criticism over delayed reporting. Although the incident was detected shortly after 5:00 a.m., Upbit did not notify the FSS until close to 11:00 a.m.
Some lawmakers allege the delay was intentional, occurring minutes after Dunamu — Upbit’s operator — finalized a merger with Naver Financial.
These allegations have increased pressure on regulators to enforce stricter reporting timelines and transparency rules.

Lawmakers push for stablecoin regulation amid mounting urgency

In parallel to the exchange liability overhaul, South Korean lawmakers are pressing financial regulators to finalize a draft stablecoin bill by Dec. 10.
They warn that if regulators miss the deadline, the National Assembly will move forward independently.

Officials hope to introduce the bill for debate during the extraordinary parliamentary session in January 2026. The legislation is expected to set standards for reserves, audits, issuance, and redemption for stablecoins — a critical gap in South Korea’s digital asset regulatory framework.

Final Thought

South Korea is positioning itself as one of the world’s strictest environments for crypto exchanges. By applying bank-level no-fault liability, demanding stronger operational standards, and pushing for rapid stablecoin legislation, regulators aim to eliminate the consumer protection gaps exposed by the Upbit hack. This shift could reshape the regional crypto landscape — and force exchanges to operate with institutional-grade discipline.