In a landmark regulatory transformation, South Korea is set to impose stringent liability standards on cryptocurrency exchanges comparable to those of banks. This unprecedented move, prompted by a security breach at Upbit, aims to ensure that users are compensated for losses incurred from hacks, irrespective of fault. As the digital asset landscape evolves, these reforms signal a commitment to not just risk management, but also the broader institutional acceptance of cryptocurrency in the South Korean economy.
Stricter Liability Following Security Breaches
The South Korean Financial Services Commission (FSC) is instituting a “no-fault” compensation model for cryptocurrency exchanges, mirroring the existing rules for banking institutions. This means that exchanges will now be legally obligated to cover user losses stemming from cyberattacks or operational failures, regardless of whether any negligence can be demonstrated. The urgency for this regulatory shift was underscored by a significant incident on November 27, when hackers moved over $30 million in Solana tokens from Upbit to external wallets within just one hour.
Since the beginning of 2023, a staggering 20 system failures across five major exchanges—Upbit, Bithumb, Coinone, Korbit, and Gopax—have impacted over 900 users, generating total losses that exceed $3 million. In response to these alarming trends, the FSC is enhancing penalty measures, with fines for security breaches potentially reaching 3% of an exchange’s annual revenue, up from the current cap of about $3.4 million. This shift emphasizes the escalating seriousness with which authorities are treating security in the booming cryptocurrency market.
Expanding Institutional Access and Market Safeguards
As South Korea seeks to formalize its cryptocurrency market, the FSC is set to empower institutions to handle digital assets starting in the second half of 2025. This move will enable entities like charities, universities, and corporations with significant financial holdings to begin trading, a significant development that could further legitimize cryptocurrency transactions in the country.
In the second half of the year, a pilot test will be conducted for accounts for investment and financial purposes for some institutional investors with risk-taking capabilities
FSC spokesperson
This phased integration into the market will also introduce trading guidelines aimed at verifying transaction purposes and sources of funds to combat money laundering and other illicit activities. By attacking the roots of market manipulation, including incidents of unfair trading practices like the first recorded “pump and dump” case under new laws, the FSC is laying a foundation for a more secure and trustworthy trading environment moving forward.
Building a Comprehensive Regulatory Framework
The anticipated Digital Asset Basic Act (DABA), expected to be finalized by late 2025, will serve as a comprehensive legal framework governing the digital asset market in South Korea. As part of these new regulations, the FSC is enforcing a stricter Virtual Asset Service Provider (VASP) regime, licensing only five key exchanges as of April 2025—Upbit, Bithumb, Coinone, Korbit, and Gopax—thereby reducing the number of legitimate platforms available for trading in Korea.
Real-name trading regulations, which require users to link their accounts with verified bank details, will continue to bolster anti-money laundering (AML) compliance. Moreover, the extended Travel Rule will apply to all crypto transactions, eliminating previous thresholds, in a bid to enhance transparency across the board. Regulators are intent on preparing a draft stablecoin bill by December 2025, ensuring that discussions and evaluations take place during the National Assembly’s January 2026 session, marking a possible shift towards more stable digital currencies.
Navigating the Exchange Landscape
In the competitive South Korean crypto arena, the “Big Four” exchanges—Upbit, Bithumb, Coinone, and Korbit—dominate spot trading but have witnessed substantial capital outflows to international platforms for derivatives trading. This trend raises concerns as users frequently turn to global exchanges like Binance or Bybit for futures and higher leverage options, despite the associated risks highlighted by a major hack on Bybit earlier this year that resulted in the theft of $1.5 billion.
Industry experts strongly recommend that users prioritize licensed platforms and actively use security features such as two-factor authentication (2FA) and withdrawal whitelists. As financial authorities continue to refine regulations and oversight, being informed about evolving FSC guidelines is crucial for traders, particularly with anticipated developments like spot Exchange-Traded Funds (ETFs) on the horizon.
Reimagining the Future of Crypto in South Korea
As South Korea revolutionizes its approach to cryptocurrency regulation, it is clear that the stakes are higher than ever. By holding exchanges accountable for user security akin to traditional banks, the nation is not only safeguarding investors but also paving the way for a more robust and vibrant digital asset ecosystem. With anticipated initiatives like the DABA and newly defined corporate trading pathways, South Korea is poised to become a leading innovator in the global cryptocurrency landscape.
