South Korea Tightens the Screws on Crypto: Exchanges to Face Bank-Grade Liability After Upbit Breach

South Korea is preparing to rewrite the rules of its digital-asset market after a major security incident at Upbit exposed vulnerabilities that regulators now say can no longer be tolerated. The country’s financial authorities are pushing for a framework that would subject cryptocurrency exchanges to the same strict liability standards that govern banks, marking one of the most consequential regulatory shifts the sector has faced in Asia.

Officials at the Financial Services Commission are examining provisions that would force exchanges to compensate users for financial losses caused by hacks or technical failures, even in cases where the platform itself was not at fault. It is a model already familiar in South Korea’s banking and electronic payments environment, where consumer protections are designed to impose uncompromising accountability on service providers. Extending that approach to digital-asset platforms signals South Korea’s intention to close a long-criticized regulatory gap that has repeatedly left crypto customers exposed.

The government’s urgency follows a breach reported on November 27, when more than 104 billion won worth of Solana-based tokens were siphoned from Upbit to external wallets within an hour. Upbit, operated by Dunamu, has been the country’s dominant crypto exchange for years, and the scale and speed of the breach have fueled calls for industry-wide reforms. Lawmakers have also questioned why the exchange waited nearly six hours before reporting the incident to financial supervisors, a delay some argue came at a politically sensitive moment, minutes after Dunamu completed a merger with Naver Financial.

Regulators are not focused solely on hacks. Data provided to members of the National Assembly shows that the country’s five largest exchanges have collectively reported 20 system disruptions since 2023, affecting more than 900 customers and generating losses surpassing 5 billion won. Upbit alone was responsible for six of those failures. The pattern has reinforced the impression that major exchanges have grown faster than the safety standards required to operate like financial-grade infrastructure.

The upcoming legislative changes are expected to introduce far tougher obligations, including enhanced IT-security rules, higher operational benchmarks and penalties that mirror those imposed on the banking sector. Lawmakers are exploring a fine structure that would allow regulators to impose penalties of up to 3% of an exchange’s annual revenue following a hacking incident, a dramatic jump from the current ceiling of roughly $3.4 million. If approved, the measures would represent one of the most aggressive consumer-protection regimes applied to crypto anywhere in the world.

Meanwhile, political pressure is mounting on a separate front: stablecoin regulation. Lawmakers have demanded that a draft bill be completed by December 10, warning regulators that they may advance legislation without government input if delays continue. Their goal is to introduce the bill during the National Assembly’s extraordinary session in January 2026, a timeline that reflects mounting concern over the systemic risks posed by unregulated digital-asset instruments.

South Korea’s escalating regulatory posture illustrates a growing conviction that crypto platforms must meet the same expectations as conventional finance. After years of rapid expansion and uneven oversight, the country appears ready to enforce a new era of accountability.