South Korea proposes no-fault rule forcing exchanges to reimburse hack losses
South Korean regulators are drafting legislation to impose a no-fault liability regime on cryptocurrency exchanges, requiring full reimbursement to users for losses from hacks or system failures unless the user is grossly negligent. The Financial Services Commission and Financial Supervisory Service want to extend protections similar to those for banks and electronic payment firms by amending the Electronic Financial Transactions Act to explicitly cover virtual asset service providers. Regulators cite 20 IT incidents at five major exchanges between 2023 and September 2025—affecting over 900 users—with a notable November 27 incident that saw Solana-based assets moved off-platform in under an hour. Proposed measures include stronger IT-security standards, regular audits, faster breach reporting, mandatory travel-rule data sharing, and fines (up to 3% of annual revenue). Legal experts say the no-fault model would be among the world’s strictest crypto consumer-protection frameworks. For traders, the proposal raises regulatory and operational costs for Korean centralized exchanges—potentially changing listing, custody and fee structures, and prompting higher insurance/reserve requirements—while improving custodial protections and reducing counterparty risk. Expect possible short-term volatility in affected exchange tokens and Korean trading pairs when enforcement steps or further incident reports are announced. The legislative timetable remains unspecified.
Neutral
The proposal tightens consumer protection and increases regulatory burden on Korean centralized exchanges. Short-term: neutral-to-bearish for exchange-native tokens and correlated Korean trading pairs because higher compliance costs and potential capital/insurance requirements can compress margins and raise uncertainty, triggering volatility on enforcement news. However, the requirement that exchanges reimburse users (no-fault) and higher custody standards reduce counterparty risk for traders, which is bullish for market confidence over the medium-to-long term and could support higher on‑exchange liquidity and reduced risk premia. Because impacts cut both ways—near-term cost/uncertainty vs longer-term trust and stability—the net immediate price bias is neutral, with episodic short-term volatility around enforcement or incident announcements.