South Korea Elevates Crypto Exchange Regulations to Bank-Level Standards Following Upbit Hack

South Korea is taking a monumental step toward strengthening the accountability and security of its cryptocurrency exchanges. In the wake of a massive $30.1 million hack on Upbit, the country's largest crypto exchange, regulators are moving to impose liability requirements akin to those governing traditional banks. This shift signals a new era where crypto platforms will be held to much stricter standards to protect users and fortify system integrity.

The Upbit Hack: A Catalyst for Change

On November 27, 2025, Upbit suffered a breach resulting in the illicit transfer of over 104 billion Solana-based tokens, equivalent to approximately 44.5 billion won (around $36 million USD), to external wallets in a mere 54 minutes. Despite the scale of this security incident, the existing South Korean regulatory framework left the exchange under minimal scrutiny regarding user compensation, as current laws do not obligate crypto platforms to reimburse losses from hacks or operational failures.

This loophole starkly contrasts with the treatment of banks and electronic payment firms, which under South Korea's electronic financial transactions law must compensate customers for losses irrespective of fault. The recent breach has sparked urgent discussions about leveling the playing field between crypto exchanges and conventional financial institutions.

New Regulations Target Crypto Exchange Accountability

The Financial Services Commission (FSC) of South Korea is actively reviewing legislative provisions to enforce bank-level liability rules on crypto exchanges. According to The Korea Times, the proposed reforms would mandate exchanges to:

Compensate users for losses incurred from security breaches or system failures regardless of negligence.
Implement robust IT security infrastructure and adhere to enhanced system standards.
Face substantial penalties for incidents, including fines up to 3% of annual revenue — a significant increase from the current ceiling of 5 billion won.

These measures would bring crypto platforms under a more stringent regulatory umbrella, encouraging better risk management and customer protection.

Addressing System Failures Beyond Hacks

The regulatory push is further supported by data revealing frequent system failures within South Korea’s crypto sector. From 2023 to September 2025, the five major exchanges — Upbit, Bithumb, Coinone, Korbit, and Gopax — reported 20 system interruptions affecting over 900 users with a collective loss of 5 billion won.

Upbit alone was responsible for six such failures, causing damages exceeding 3 billion won. These disruptions have not only shaken user confidence but also underscored the vulnerabilities in operational resilience across exchanges.

Improving Timeliness and Transparency in Reporting

The Upbit incident also exposed shortcomings in timely incident reporting. The exchange reportedly detected the hack at 5 a.m. but delayed informing regulators until nearly 11 a.m. This lag raised suspicion among lawmakers, especially considering Upbit's concurrent merger with Naver Financial, finalized just minutes before the disclosure.

New regulation proposals emphasize reducing delays in breach notifications to regulators and the public to ensure transparency and quicker responses.

Broader Compliance and Anti-Money Laundering (AML) Initiatives

In parallel with security reforms, South Korean authorities are intensifying enforcement of anti-money laundering (AML) rules within the crypto industry. The Financial Intelligence Unit (FIU) has conducted rigorous inspections on major exchanges concerning Know Your Customer (KYC) procedures and suspicious transaction reporting.

One notable outcome includes the suspension of Dunamu, Upbit’s operator, from onboarding new customers for three months, alongside a hefty fine of 35.2 billion won. This strict enforcement sets a precedent for future penalties across the sector.

Additionally, the government plans to lower the threshold for the "crypto travel rule," expanding identity verification and transaction tracking to transfers below 1 million won, countering strategies that previously enabled evasion via splitting transactions.

Strengthening Oversight and Governance

The FSC plans to grant the FIU pre-emptive powers to freeze accounts in serious cases swiftly. Legislative measures may also prohibit individuals convicted of serious crimes such as tax evasion or drug offenses from acquiring significant shares in licensed crypto platforms.

These changes align South Korea with international standards promoted by bodies like the Financial Action Task Force (FATF), enhancing cross-border cooperation and regulatory consistency.

Looking Ahead: Legislative Timeline and Industry Impact

Amendments to financial laws reflecting these new obligations are expected to be enacted in the first half of 2026. While South Korea's crypto tax implementation faces potential delays until 2027 due to ongoing infrastructure challenges, the government remains committed to finalizing a comprehensive regulatory framework, including a stablecoin bill with an imminent December 10 deadline.

The reforms collectively aim to bolster South Korea’s position as a competitive and secure environment for digital assets, addressing previous regulatory gaps and reinforcing public trust.

Conclusion

South Korea’s move to treat cryptocurrency exchanges with the same liability and regulatory rigor as banks marks a pivotal shift in the digital asset industry. The Upbit hack served as a wake-up call to upgrade security expectations, accountability measures, and compliance enforcement across the board. As these reforms roll out, users can anticipate greater protections, while exchanges will need to elevate their operational standards to thrive in an increasingly regulated landscape.

Author: Anas Hassan – Crypto Journalist with over five years covering blockchain, crypto, DeFi, and emerging technologies.

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