South Korea to Regulate Cryptocurrency Exchanges as Financial Institutions Following Upbit Breach

South Korea is set to implement bank-level liability standards for cryptocurrency exchanges in response to a $30.1 million hack at Upbit last month, moving towards regulating significant platforms with the same rigor as conventional financial institutions.

As reported by The Korea Times, the Financial Services Commission is evaluating provisions that would mandate crypto exchanges to reimburse users for losses incurred due to hacking or system failures, irrespective of fault, reflecting regulations currently applicable solely to banks and electronic payment companies under the nation’s electronic financial transactions legislation.

This initiative follows a breach on November 27 at Upbit, where over 104 billion Solana-based tokens valued at 44.5 billion won ($36M) were transferred to external wallets within a mere 54 minutes.

In spite of the incident, the exchange faced minimal repercussions as regulators are unable to mandate compensation under the prevailing laws.

South Korea’s largest crypto exchange Upbit @Official_Upbit reported a $36m Solana network hack on Thursday, halting withdrawals immediately and committing to fully reimburse affected customers.
The incident coincides with its 2019 breach l…https://t.co/o0VLiqKin7

— Cryptonews.com (@cryptonews) November 27, 2025

Increasing System Failures Prompt Regulatory Changes

The proposed reforms arise amid a trend of platform instability within Korea’s cryptocurrency sector.

Data from the Financial Supervisory Service indicates that the five leading exchanges—Upbit, Bithumb, Coinone, Korbit, and Gopax—experienced 20 system failures from 2023 to September this year, impacting over 900 users with total losses of 5 billion won.

Upbit was responsible for six of these incidents, with more than 600 victims suffering damages amounting to 3 billion won.

Draft legislation is anticipated to require IT security infrastructure plans, enhanced system standards, and considerably stricter penalties.

Lawmakers are contemplating revisions that would permit fines of up to 3 percent of annual revenue for hacking incidents, aligning with standards for traditional financial institutions and replacing the current cap of 5 billion won.

This change would fundamentally alter accountability within Korea’s cryptocurrency industry by obligating exchanges to compensate victims, similar to the responsibilities banks have in response to security breaches or system failures.

The Upbit breach also highlighted failures in reporting, as the exchange delayed notifying regulators for over six hours after detecting the hack at 5 a.m., only informing them at 10:58 a.m.

Lawmakers from the ruling party accused Dunamu of intentionally postponing disclosure until after its scheduled merger with Naver Financial, which concluded at 10:50 a.m.

Wider Compliance Enforcement Escalates Across the Sector

The regulatory tightening encompasses not only security requirements but also extensive anti-money laundering enforcement.

Korea’s Financial Intelligence Unit is preparing sanctions against major exchanges following on-site inspections that assessed compliance with Know Your Customer protocols and suspicious transaction reporting.

The unit has already penalized Dunamu with a three-month suspension on new customer activities and a fine of 35.2 billion won, establishing a precedent for penalties expected to reach hundreds of billions of won across the industry.

Authorities are concurrently broadening the crypto travel rule to cover transactions below 1 million won, closing a loophole that allowed users to bypass identity checks by dividing transfers into smaller amounts.

“We will intensify efforts against crypto money laundering, extending the Travel Rule to transactions under 1 million won,” stated Financial Services Commission Chairman Lee Eok-won during a National Assembly briefing.

The Financial Intelligence Unit will acquire pre-emptive powers to freeze accounts in serious cases, while new regulations will prohibit individuals with convictions for tax offenses or drug-related crimes from becoming major shareholders in licensed platforms.

Legislative amendments are anticipated in the first half of 2026 as Korea aligns with global standards through enhanced collaboration with the Financial Action Task Force.

South Korean crypto tax may face a fourth delay to 2027 as proposed amendments fail to address framework issues. #CryptoTax #SouthKoreahttps://t.co/L0vuIlvbSu

— Cryptonews.com (@cryptonews) November 18, 2025

The enforcement initiative unfolds as Korea’s long-postponed crypto tax regime faces potential delays beyond its January 2027 start date due to ongoing infrastructure deficiencies, with no significant updates to the framework despite multiple postponements since its approval in 2020.

Recently, lawmakers also established a December 10 deadline for the government to present a regulatory framework for stablecoins, or face legislative action, with discussions focusing on whether banks should lead issuance or if fintech firms should play a more active role.

Financial Supervisory Service Governor Lee Chan-jin acknowledged the limitations of current oversight despite the severity of the Upbit incident, stating that “regulatory oversight clearly has limits in imposing penalties” under existing law.

However, with the proposed reforms, the aim is to address these gaps as Korea positions itself to compete with major economies that have already established comprehensive digital asset frameworks.

The post Korea to Treat Crypto Exchanges Like Banks After Upbit Hack appeared first on Cryptonews.