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Korea to Treat Crypto Exchanges Like Banks After Upbit Hack

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South Korea is transferring to impose bank-level legal responsibility requirements on crypto exchanges following a $30.1 million hack at Upbit final month, shifting towards treating main platforms with the identical regulatory rigor as conventional monetary establishments.

According to The Korea Times, the Financial Services Commission is reviewing provisions that might require crypto exchanges to compensate customers for losses attributable to hacking or system failures, no matter fault, mirroring guidelines at the moment utilized solely to banks and digital fee corporations underneath the nation’s digital monetary transactions regulation.

The push follows a Nov. 27 breach at Upbit that noticed over 104 billion Solana-based tokens price 44.5 billion gained ($36M) transferred to exterior wallets in simply 54 minutes.

Despite the incident, the change confronted minimal penalties since regulators can not order compensation underneath current legal guidelines.

Mounting System Failures Drive Regulatory Overhaul

The deliberate reforms come amid a sample of platform instability throughout Korea’s crypto sector.

Financial Supervisory Service information exhibits the 5 main exchanges, Upbit, Bithumb, Coinone, Korbit, and Gopax, recorded 20 system failures between 2023 and September this 12 months, affecting over 900 customers with mixed losses of 5 billion gained.

Upbit alone accounted for six incidents, with greater than 600 victims struggling 3 billion gained in damages.

Draft laws is predicted to mandate IT safety infrastructure plans, upgraded system requirements, and considerably stronger penalties.

Lawmakers are contemplating revisions that might permit fines of up to 3 p.c of annual income for hacking incidents, matching requirements for conventional monetary establishments and changing the present 5 billion gained cap.

The shift would essentially reshape accountability in Korea’s crypto business by making exchanges liable to compensate victims, as banks should reply to safety breaches or system failures.

The Upbit breach additionally uncovered reporting failures, with the change ready over six hours after detecting the hack at 5 a.m. to notify regulators at 10:58 a.m.

Ruling celebration lawmakers alleged that Dunamu intentionally delayed disclosure till after its scheduled merger with Naver Financial, which concluded at 10:50 a.m.

Broader Compliance Crackdown Intensifies Across Industry

The regulatory tightening extends past safety necessities into complete anti-money laundering enforcement.

Korea’s Financial Intelligence Unit is preparing sanctions against major exchanges following on-site inspections that examined compliance with Know Your Customer checks and suspicious transaction reporting.

The unit has already disciplined Dunamu with a three-month suspension on new buyer exercise and a 35.2 billion gained effective, setting a precedent for penalties anticipated to attain a whole lot of billions of gained throughout the sector.

Authorities are concurrently expanding the crypto travel rule to apply to transactions under 1 million won, closing a loophole that allowed customers to evade identification checks by splitting transfers into smaller quantities.

“We will crack down on crypto cash laundering, increasing the Travel Rule to transactions underneath 1 million gained,” Financial Services Commission Chairman Lee Eok-won mentioned throughout a National Assembly briefing.

The Financial Intelligence Unit will achieve pre-emptive account-freezing powers in critical circumstances, whereas new guidelines will bar people with convictions for tax crimes or drug offenses from changing into main shareholders in licensed platforms.

Legislative amendments are anticipated within the first half of 2026 as Korea aligns with world requirements via expanded coordination with the Financial Action Task Force.

The enforcement drive unfolds as Korea’s long-delayed crypto tax regime faces potential postponement past its January 2027 begin date due to persistent infrastructure gaps, with no important updates to the framework regardless of a number of deferrals since its 2020 approval.

Recently, lawmakers additionally set a December 10 deadline for the government to deliver a stablecoin regulatory framework, or face legislative motion, with debates centering on whether or not banks ought to lead issuance or whether or not fintech corporations ought to take part extra actively.

Financial Supervisory Service Gov. Lee Chan-jin acknowledged the boundaries of present oversight regardless of the seriousness of the Upbit incident, stating that “regulatory oversight clearly has limits in imposing penalties” underneath current regulation.

However, with the deliberate reforms, it goals to shut these gaps as Korea positions itself to compete with main economies which have already formalized complete digital asset frameworks.

The submit Korea to Treat Crypto Exchanges Like Banks After Upbit Hack appeared first on Cryptonews.

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