The South Korean government is taking significant steps to enhance the regulatory framework for cryptocurrency exchanges in the wake of a major security breach at Upbit, the nation”s largest crypto trading platform. Following the incident, which saw substantial losses due to hacking, the Financial Services Commission (FSC) announced plans to implement strict compliance measures akin to those applied to traditional banks.
One of the key elements of the proposed legislation is the introduction of no-fault compensation rules for Virtual Asset Service Providers (VASPs). This means that exchanges will be required to reimburse users for losses incurred from system failures or hacks, irrespective of whether the exchange was negligent. Currently, similar liability applies to electronic payment firms and financial institutions, highlighting the urgent need for a robust consumer protection framework in the rapidly evolving digital asset market.
The impetus for this regulatory overhaul stems from a serious breach reported on November 27 at Upbit, where approximately 104 billion Solana-based coins, valued at around 44.5 billion won (approximately $30.1 million), were transferred to external wallets within a mere 54 minutes. Despite the significant scale of this breach, the current legal framework limits regulators” ability to enforce restitution, leaving affected users with minimal recourse.
Data from the Financial Supervisory Service (FSS) reveals that the five major cryptocurrency exchanges—Upbit, Bithumb, Coinone, Korbit, and Gopax—experienced a total of 20 system failures between 2023 and September 2025. These failures affected over 900 users and resulted in losses estimated at 5 billion won. Notably, Upbit was responsible for six of these incidents, impacting over 600 victims and leading to combined losses of 3 billion won.
The Upbit incident has also raised concerns regarding the platform”s internal reporting procedures. Reports indicate that while Upbit detected the hack around 5 a.m., it did not notify the FSS until nearly six hours later, at 10:58 a.m. This delay prompted accusations from some lawmakers that Upbit attempted to conceal the breach until after a significant merger involving its operator, Dunamu, and Naver Financial had concluded.
FSS Governor Lee Chan-jin has acknowledged the limitations of current regulatory oversight, emphasizing the necessity for stronger measures. The proposed laws aim to tighten operational standards for crypto exchanges, which would include mandatory IT security infrastructure plans and improved staffing requirements. Additionally, the legislation seeks to enhance financial accountability by introducing penalties of up to 3% of an exchange”s annual revenue in the event of hacking incidents, aligning the regulatory landscape for crypto exchanges more closely with traditional financial institutions.
The government”s response to the Upbit breach underscores a commitment to closing regulatory gaps and ensuring that the digital asset sector adheres to stringent security and consumer protection standards. As the cryptocurrency market continues to evolve, these regulations are crucial in fostering a more secure environment for users.
