CMC News

South Korea Plans Bank-Level Liability Rules for Exchanges

#SouthKorea is preparing to impose bank-level, no-fault liability rules on #crypto exchanges following the recent breach at Upbit, holding platforms to the same compensation standards as traditional financial institutions.

The Financial Services Commission is reviewing provisions that would require exchanges to compensate customers for losses from hacks or system failures, even when the platform is not at fault, The Korea Times reported Sunday. The no-fault compensation model currently applies only to banks and electronic payment firms under Korea's Electronic Financial Transactions Act.

The regulatory push follows a Nov. 27 incident at Upbit, operated by Dunamu, in which more than 104 billion #Solana-based tokens worth approximately 44.5 billion won were transferred to external wallets in under an hour. The breach exposed major gaps in consumer protection for #crypto users compared to traditional banking customers.

Regulators are also reacting to a pattern of recurring outages. Data submitted to lawmakers by the Financial Supervisory Service shows the country's five major exchanges reported 20 system failures since 2023, affecting over 900 users and causing more than 5 billion won in combined losses.

#Upbit alone recorded six failures impacting 600 customers during that period. The frequency of incidents has raised questions about operational standards and infrastructure investment across the industry.

The upcoming legislative revision is expected to mandate stricter IT security requirements, higher operational standards and tougher penalties. Lawmakers are weighing a rule that would allow fines of up to 3% of annual revenue for hacking incidents, the same threshold used for banks. Currently, crypto exchanges face a maximum fine of $3.4 million.