Key Insights
- South Korea is preparing bank-level no-fault liability rules for crypto exchanges, including Upbit, requiring them to reimburse customers even when not at fault.
- The move follows the Upbit breach, where 104 billion Solana-based tokens were transferred to external wallets in under an hour.
- Regulators cite 20 system failures since 2023 across major exchanges, causing over 5 billion won in user losses.
The Upbit hack in November, 2025, where attackers drained 104 billion Solana-based tokens worth $30.1 million won in just 54 minutes has forced Seoul regulators into action.
The Financial Services Commission (FSC) unveiled draft rules that would impose strict, bank-style liability on exchanges for user losses regardless of fault.
The breach, disclosed hours after Upbit parent Dunamu finalized its merger with Naver Financial, exposed a glaring regulatory gap.
Current law caps fines at 5 billion won ($3.4 million) and offers no mandatory compensation framework, leaving victims dependent on voluntary payouts.
With Upbit controlling roughly 80% of South Korea’s $100 billion annual crypto trading volume and the country home to 6.8 million active crypto investors, the FSC’s amendment to the Electronic Financial Transactions Act aims to close that hole fast.
For the industry, the new rules could raise operating costs 20-30% and reshape competition among the “Big Five” platforms — Upbit, Bithumb, Coinone, Korbit, and Gopax — while finally giving retail traders the same protections they enjoy at traditional banks.
What the Upbit Incident Actually Revealed
Attackers hit Upbit in November this year. They moved assets from hot wallets to external addresses in under an hour.
Upbit detected the breach almost immediately but waited till more than six hours later, to notify the Financial Supervisory Service.
Lawmakers later tied the delay to the simultaneous closing of Dunamu’s merger with Naver Financial according to a report from the National Assembly’s Positive Politics Forum.
This wasn’t Upbit’s first rodeo. The exchange has suffered six system failures since 2023, affecting over 600 users and causing 3 billion won in losses, FSS data shows.
Across the five major platforms, regulators logged 20 outages in the past 33 months, impacting 900 users and 5 billion won total.
Yet penalties remained light, capped at 5 billion won, and compensation stayed voluntary.
The Proposed Fix: Banks as the New Benchmark
The FSC’s draft, released December, extends the Electronic Financial Transactions Act to cover virtual asset service providers.
Exchanges would face strict liability. Any losses from hacks, system failures, or errors trigger automatic reimbursement, no questions asked. That’s exactly how traditional banks operate.
Additional requirements include:
- Real-time breach reporting within 30 minutes
- Mandatory third-party IT audits twice a year
- Annual security investment plans submitted to regulators
Fines could climb to 3% of yearly revenue, a potential $300 million hit for Upbit based on its estimated $10 billion 2024 turnover.
Public consultation runs until January 15, 2026, with implementation targeted for the second quarter.
Market Fallout and Upbit’s Dominant Position
Upbit still processes roughly four out of every five crypto trades in Korea. Daily active users dipped 15% in the week after the hack, from 2.5 million to 2.1 million, according to Sensor Tower analytics.
Trading volume fell 12% immediately but has since stabilized near $350 million daily. The merger with Naver Financial gives Upbit deeper pockets and access to LINE Pay’s 200 million users across Asia, but it also intensifies regulatory scrutiny.
Short-term, compliance costs could rise 20-30% industry-wide, estimates from the Korea Federation of Banks’ 2024 report suggest, potentially widening the gap between Upbit and smaller rivals.
South Korea isn’t alone. The EU’s MiCA regime already demands full reserve backing and rapid incident reporting. Singapore fined DBS $2.6 million in October 2025 for repeated outages.
Seoul’s move simply brings local rules in line with international standards, and with the expectations of 13% of its adult population who now trade crypto.
For now, Upbit has restored all affected funds through insurance and reserves, and it bumped cold-storage coverage to 95% of assets.
Source: https://www.thecoinrepublic.com/2025/12/07/south-korea-to-impose-bank-level-liability-on-crypto-exchanges-after-upbit-hack/
