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Korea to Treat Crypto Exchanges Like Banks After $30M Upbit Hack
**South Korea is taking a bold step towards regulating its crypto industry by imposing bank-level liability standards on exchanges following the recent hack at Upbit, which resulted in over $36 million in losses. The Financial Services Commission is reviewing provisions that would require crypto exchanges to compensate users for losses caused by hacking or system failures, regardless of fault.
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A Pattern of Instability
**The planned reforms come amidst a string of platform instability across Korea's crypto sector. Data from the Financial Supervisory Service shows that five major exchanges recorded 20 system failures between 2023 and September this year, affecting over 900 users with combined losses of $44.5 billion won.
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The Upbit Breach
**The hack at Upbit on November 27 saw over 104 billion Solana-based tokens worth $36 million transferred to external wallets in just 54 minutes. Despite the incident, the exchange faced minimal penalties since regulators cannot order compensation under existing laws. The Upbit breach also exposed reporting failures, with the exchange waiting over six hours after detecting the hack to notify regulators.
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Regulatory Overhaul
**The shift towards treating crypto exchanges like banks would fundamentally reshape accountability in Korea's crypto industry by making exchanges liable to compensate victims. Draft legislation is expected to mandate IT security infrastructure plans, upgraded system standards, and significantly stronger penalties. Lawmakers are considering revisions that would allow fines of up to 3 percent of annual revenue for hacking incidents.
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Comprehensive Anti-Money Laundering Enforcement
**The regulatory tightening extends beyond security requirements into comprehensive anti-money laundering enforcement. Korea's Financial Intelligence Unit is preparing sanctions against major exchanges following on-site inspections that examined compliance with Know Your Customer checks and suspicious transaction reporting.
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A Broader Crackdown
**Authorities are also expanding the crypto travel rule to apply to transactions under $1 million, closing a loophole that allowed users to evade identity checks by splitting transfers into smaller amounts. Additionally, new rules will bar individuals with convictions for tax crimes or drug offenses from becoming major shareholders in licensed platforms.
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Korea Aligns with Global Standards
**The enforcement drive unfolds as Korea's long-delayed crypto tax regime faces potential postponement beyond its January 2027 start date due to persistent infrastructure gaps. Recently, lawmakers set a December 10 deadline for the government to deliver a stablecoin regulatory framework, or face legislative action.
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A New Era of Regulation
**The planned reforms mark a significant shift towards treating crypto exchanges like banks and aligning with global standards through expanded coordination with the Financial Action Task Force. With its comprehensive digital asset frameworks already formalized by major economies, Korea aims to position itself as a leader in regulating the crypto industry.
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Key Takeaways:
*** Korea's Financial Services Commission is reviewing provisions that would require crypto exchanges to compensate users for losses caused by hacking or system failures. * The planned reforms aim to impose bank-level liability standards on crypto exchanges, mirroring rules currently applied only to banks and electronic payment firms under the country’s electronic financial transactions law. * Draft legislation will mandate IT security infrastructure plans, upgraded system standards, and significantly stronger penalties for hacking incidents. * Authorities are expanding the crypto travel rule to apply to transactions under $1 million and preparing sanctions against major exchanges for non-compliance with anti-money laundering regulations.
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Next Steps:
**The legislative amendments are expected in the first half of 2026 as Korea aligns with global standards through expanded coordination with the Financial Action Task Force.