South Korea to Require Cryptocurrency Exchanges to Assume 'No-Fault Compensation Obligations', Upbit Hacking Incident Sparks Controversy

According to reports, the South Korean government is advancing legislation to introduce a 'no-fault compensation' rule for major cryptocurrency exchanges similar to the banking industry. The Financial Services Commission (FSC) of South Korea is reportedly considering requiring virtual asset service providers to assume compensation responsibility even in cases of hacker attacks or system failures, regardless of fault.

Currently, this mandatory compensation only applies to traditional financial institutions and electronic payment companies.

This policy initiative stems from a security incident on November 27th at the Upbit platform, where approximately 44.5 billion Korean won (about 30.1 million USD) in assets were transferred to external wallets within 54 minutes, and regulatory authorities were unable to compel the platform to compensate under existing regulations.

The South Korean financial regulatory agency also noted that system failures have been frequent in the cryptocurrency trading industry in recent years. Data shows that from 2023 to September this year, the five major exchanges experienced a total of 20 system failures, affecting over 900 users with cumulative losses of about 5 billion Korean won, with Upbit accounting for 6 incidents and losses of around 3 billion Korean won.

The draft also aims to increase technical security requirements and raise the maximum fine for hacking incidents to 3% of annual revenue, in line with traditional financial institutions, exceeding the current fixed limit of 5 billion Korean won.

Furthermore, the Upbit incident has sparked controversy over 'delayed reporting'. The platform detected anomalies at 5 a.m. but only reported to regulatory authorities at 10:58, leading some lawmakers to question whether it intentionally waited for the completion of the merger process between its parent company Dunamu and Naver Financial before disclosing. Regulatory authorities are investigating the matter, but it is expected to be difficult to impose severe penalties under the current framework. (Korea JoongAng Daily)

Related Articles