South Korea to Impose Bank-Level Liability on Crypto Exchanges

South Korea plans to impose bank-level, no-fault liability on crypto exchanges, requiring them to compensate users for losses from hacks or failures, with fines up to 3% of annual revenue.

South Korea is moving to impose bank-level, no-fault liability rules on cryptocurrency exchanges following a major security breach at Upbit, where over $30 million in Solana-based tokens were stolen. The Financial Services Commission is drafting legislation that would require exchanges to compensate users for losses from hacks or system failures, regardless of fault, aligning crypto platforms with the standards applied to banks under the Electronic Financial Transactions Act. The proposed rules include stricter IT security mandates, higher operational standards, and penalties of up to 3% of annual revenue for security lapses, replacing the current maximum fine of $3.4 million. Data from the Financial Supervisory Service shows that since 2023, major exchanges have reported 20 system failures affecting over 900 users and causing more than 5 billion won in losses. The legislative changes aim to enhance consumer protection, increase compliance requirements, and strengthen the overall security and stability of the digital asset sector. Industry reactions are mixed as stakeholders assess the impact on operational costs and security measures.