South Korea to impose bank-level liability on crypto exchanges after Upbit’s $30 million hack

• South Korea plans to submit an application rules for no-fault compensation at bank level to crypto exchanges after a major breach at Upbit.
• Regulators want exchanges to do that reimburse users for losses due to hacks or system errorseven if the platform is not at fault.
• The upcoming revision introduces stricter IT requirements, higher fines and more extensive supervisionmarking the heaviest regulatory shift in the Korean crypto sector to date.

South Korea is preparing one of its most aggressive regulatory responses But after a high-profile incident at Upbit, concerns arose again about weak digital asset protection. The government is now aiming to treat crypto exchanges with the same standards as traditional financial institutions, an approach that could redefine operational risk across the industry.

Read more: Another Hit: ₩44.5 Billion Solana Hot-Wallet Hack Destroys Korea’s Top Crypto Exchange

Government is taking measures to treat crypto platforms as banks

South Korean regulators have long recognized gaps in their digital asset regulations, but the latest breach at Upbit reinforces the political urgency to act. Authorities are now pursuing a framework that would require exchanges to compensate users for financial losses no matter the faultwhich reflects the liability rules that banks and electronic payment companies must follow.

This marks a significant departure from the current system, in which crypto platforms face far fewer obligations. Under existing laws, regulators cannot enforce refunds even if an exchange suffers a major security flaw. The Upbit hack exposed this flaw in real time.

More than on November 27 104 billion won in Solana-based tokensabout $30 million were transferred from Upbit to external wallets within an hour. Despite the scale of the breach, legal restrictions limited authorities’ power to enforce damages or impose meaningful penalties.

For policymakers, this incident was not an isolated incident; it was the latest example of operational vulnerability within the Korean crypto sector. As one official noted, user protection standards had become “unacceptably inconsistent” with the size and influence of the industry.

Recurring failures highlight the magnitude of the problem

Repeated disruptions and weak obligations are accelerating the regulatory shift

Data provided to lawmakers by the Financial Supervisory Service (FSS) shows that the country’s five major exchanges: Upbit, Bithumb, Coinone, Korbit and Gopax reported 20 system errors from 2023 until September this year. More than 900 users were not spared from these disruptions, and an estimated 5 billion won were lost.

Upbit alone recorded six incidents, affecting more than 600 clients. It is clear that the trend indicates that technical instability is not an occasional inconvenience, but a structural risk that can no longer be ignored by regulators.

System disruptions are having very significant consequences in Korea, with cryptocurrency trading volumes among the highest in the region. Therefore, there may be the logistics of inability to withdraw funds, crippling accounts and breaking price transactions in unpredictable times. The fact that such failures can cause forced losses for retailers and erode market confidence on a larger scale.

Regulators believe that in the absence of stricter accountability guidelines, the exchanges will have very little incentive to improve infrastructure or implement bank-style security measures. The new liability model will aim to undo this imbalance.

Read more: South Korea Warns ETFs: Cryptocurrency Exposure Too High – Coinbase and MicroStrategy Under Fire