South Korea Proposes Bank-Level Liability Rules for Crypto Exchanges After Upbit Hack

South Korea’s Financial Services Commission (FSC) and Financial Supervisory Service (FSS) are drafting rules to impose bank-level standards on virtual asset service providers following a major breach at Upbit on November 27, 2025. The incident saw about 104 billion tokens moved on Solana (SOL) in roughly 54 minutes, valued at about 44.5 billion won (~$30–36 million). Upbit pledged to cover customer losses voluntarily, but current laws do not mandate automatic reimbursement. The draft measures would require stronger IT security and custody standards, regular audits, clearer recovery plans and compulsory compensation for customers affected by hacks or system failures. Regulators also propose tougher penalties: replacing a fixed maximum fine (previously 5 billion won) with fines up to 3% of an exchange’s annual revenue for serious breaches. Reports show five major Korean exchanges faced 20 system failures from 2023 to Sept 2025, affecting over 900 users and causing roughly 5 billion won in losses—facts regulators cite to justify the reforms. The proposed rules remain under internal review at the FSC and must pass formal legislative processes. For traders, mandatory compensation and higher security mandates could raise operational costs for exchanges, prompt increased insurance and security spending, and alter fee structures. The shift narrows the regulatory gap between crypto platforms and banks, aiming to boost consumer confidence, though implementation and legal changes may take time.