South Korea is planning to implement rules of strict bank-like “no-fault” liability for crypto exchanges which are going to be a result of the recent Upbit security incident.
The Korea Times reports that the Financial Services Commission (FSC) is contemplating a new law that would allow exchanges to make good users’ losses in case of hacks or technical failures, even when the exchange is not involved in the problem at all.
At present, this no-fault compensation system is only for banks and e-payment firms as per Korea’s Electronic Financial Transactions Act. If the proposed change happens, the crypto platforms would have to bear the same responsibilities as banks and electronic payment firms, hence the customers would be able to get stronger protection in case anything goes wrong.
Lawmakers Aggressively Call for More Severe Punishments Following Interruption of Exchanges
Meanwhile, regulators are taking action on the pattern of outages getting more frequent. Based on the information provided to the government by the Financial Supervisory Service (FSS), the five biggest exchanges of South Korea, that is, Upbit, Bithumb, Coinone, Korbit, and Gopax have reported about 20 system outages together since 2023. These complications caused around 900 clients to lose money amounting to more than 5 billion won in total. Upbit alone was responsible for six outages which affected approximately 600 customers.
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New legislation is likely to strengthen IT security compliance, raise minimum operating standards, and impose tougher penalties. One of the proposals being floated is a rule allowing exchange operators to be fined for up to 3% of their annual revenue in the event of a security breach which is the same standard banks are subjected to. Currently, the highest fine imposed on cryptocurrency exchanges is $3.4 million.
The ruling party put pressure on the government to pass the law that was already delayed several times and it is the intention of the authorities that the bill will be discussed during the National Assembly’s extraordinary session of January 2026.
