Korea Signals Strict New Era for Crypto Firms: Mandatory Compensation, Bigger Fines
Instead of viewing crypto exchanges as technology companies operating in a gray zone, policymakers are now pushing to classify them under rules normally reserved for banks and major payment institutions — and that includes full responsibility for user losses even when the platform itself is not to blame.
South Korea is preparing bank-style “no-fault” liability rules for crypto exchanges.
A surge of outages and the Upbit incident pushed lawmakers toward stronger consumer protections.
Proposed penalties may reach 3% of annual revenue — far higher than today’s fixed fines.
A separate stablecoin bill faces a December 10 deadline amid political pressure.
Recurring Exchange Failures Force Regulators to Rethink the Rules
The turning point has not been a single incident but an accumulation of failures.
According to data delivered to lawmakers, Korea’s biggest exchanges — Upbit, Bithumb, Coinone, Korbit and Gopax — collectively suffered 20 service disruptions since last year. More than 900 users were affected, and losses exceeded 5 billion won.
For regulators, the pattern indicates that system fragility, not isolated mistakes, is the problem.
The Financial Services Commission (FSC) and Financial Supervisory Service (FSS) have concluded that voluntary safeguards are no longer sufficient, and exchanges must now meet standards closer to those that govern the banking sector.
The Upbit Breach Becomes the Catalyst — but Not for the Reason Most Expect
Although the late-November Upbit breach drew widespread attention, the fallout had more to do with the exchange’s response than the hack itself.
More than 104 billion won worth of Solana-based tokens left Upbit wallets in under an hour. The technical failure was serious — but lawmakers were equally focused on the lag in reporting.
Nearly six hours passed before the incident was disclosed to the FSS, a delay that sparked political criticism, especially because it followed minutes after Dunamu finalized a merger with Naver Financial.
The episode convinced legislators that crypto exchanges must be held to the same rapid-reporting and consumer-compensation standards that banks face.
“No-Fault” Liability: Banks Already Live With It — Crypto May Be Next
Under Korea’s Electronic Financial Transactions Act, banks and payment firms are required to reimburse customers for losses caused by system failures, even when internal wrongdoing cannot be proven.
This “no-fault” rule ensures that consumers are protected first, and investigations come after.
Regulators are now exploring whether this same rule should apply to exchanges — meaning a hacked or malfunctioning platform would be required to pay back customers regardless of whether negligence is established.
This would represent the most aggressive consumer-protection mandate ever imposed on Korea’s crypto sector.
Stricter Fines, Higher Operational Standards and Mandatory Security Upgrades
In addition to liability expansion, lawmakers are considering new enforcement tools.
One proposal would authorize fines of up to 3% of annual revenue for major incidents — matching penalties already used for banks. Today, even severe failures by crypto exchanges carry a maximum fine of only about $3.4 million, a figure many lawmakers say is outdated and too small to deter misconduct.
The broader package is expected to include tougher IT requirements, enhanced auditing, and mandatory reporting windows measured in minutes, not hours.
Regulation Expands Beyond Hacks — Stablecoins Now Under Deadline Pressure
The push for exchange liability coincides with mounting political demands for a comprehensive stablecoin law.
Parliament has given regulators until December 10 to deliver a draft bill.
If they miss the deadline, senior lawmakers have warned they will advance legislation without the government’s input during the National Assembly’s extraordinary session in early 2026.
This suggests Korea intends to modernize its crypto framework across multiple fronts at once: exchanges, payments, stablecoins and anti–money laundering controls.
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Filed under: Bitcoin - @ December 7, 2025 7:22 pm