South Korea Set to Enforce Bank-Level Liability on Crypto Exchanges for Hacks and Failures

These new rules would mandate that platforms fully compensate users for any losses incurred due to hacks, system failures, or other security breaches, regardless of whether negligence can be proven.This development comes on the heels of a major security incident at Upbit, one of the country's leading exchanges, where hackers stole approximately $28 million in cryptocurrencies last month.

The proposed regulations aim to align crypto exchanges with the accountability standards of traditional banks, where financial institutions are required to reimburse customers for unauthorized transactions or operational errors without the need for fault attribution.Authorities in South Korea, a global hotspot for crypto trading with high adoption rates, believe this will enhance user confidence and deter lax security practices among operators. The Financial Services Commission (FSC) and other regulatory bodies are reportedly fast-tracking these measures, with potential implementation as early as next year.

The catalyst for this policy shift appears to be the recent Upbit breach, which involved the theft of various digital assets, including Bitcoin and Ethereum equivalents.Upbit, which handles billions in daily trading volume, has already begun compensating affected users, but the incident highlighted vulnerabilities in the sector. Similar past events, such as the 2019 Bithumb hack, have underscored the need for stronger safeguards.

Industry experts have mixed reactions. Proponents argue that no-fault compensation will professionalize the market and attract more institutional investors, while critics warn it could increase operational costs for exchanges, potentially leading to higher fees or reduced services for users.South Korea's crypto ecosystem, which includes major players like Bithumb, Korbit, and Coinone alongside Upbit, already operates under a robust Virtual Asset Service Provider (VASP) licensing regime introduced in 2021. These new rules would build on that framework, possibly including requirements for enhanced cybersecurity audits and insurance mandates.

As of December 2025, discussions are ongoing, with the FSC expected to release draft guidelines soon.This aligns with global trends where regulators, from the EU's MiCA framework to the US's evolving SEC oversight, are tightening controls on crypto to mitigate risks like those seen in the FTX collapse.

This policy could set a precedent for other Asian nations, where crypto adoption is booming but regulatory maturity varies. Investors in South Korea are advised to monitor updates closely, as these changes could reshape how exchanges handle security and customer relations.