Upbit hacking incident continues! South Korea calls for legislation to treat exchanges like banks, requiring compensation to users even without fault

The South Korean government is strengthening cryptocurrency regulation, planning to require exchanges to bear the same “no-fault liability” as banks, meaning they must compensate users for losses even if the fault does not lie with the exchange. This major reform stems from last month’s Upbit hack, in which over 44.5 billion KRW was stolen and the exchange was accused of delaying notification. Additionally, authorities have criticized exchanges for multiple system failures in recent years.

Exchange Liability Upgrade: South Korea Promotes “Bank-Level” No-Fault Compensation System

According to The Korea Times, the South Korean Financial Services Commission ((FSC)) is drafting amendments to require crypto exchanges to be liable for user losses caused by hacking or system failures, regardless of whether the exchange was at fault.

This “no-fault liability” ((no-fault liability)) model is currently only applied to banks and electronic payment institutions. Once the bill passes, exchanges will be officially regulated like financial institutions and must adhere to consumer protection and operational standards similar to banks.

(North Korean hackers return? Lazarus accused as culprit in Upbit case, using identical coin-mixing tactics)

Legislative Acceleration Trigger: Upbit Hacked and Delayed Notification by 6 Hours?

On November 27, Upbit suffered a major cybersecurity incident. In just 54 minutes, over 10.4 billion Solana ecosystem tokens worth approximately 44.5 billion KRW ((about $30.1 million)) were drained. The company emphasized it would fully compensate user losses, while public suspicion centers on the notorious North Korean hacker group Lazarus as the likely perpetrator.

The Financial Supervisory Service ((FSS)) stated, “Since current regulations do not require no-fault compensation, regulatory authorities cannot force Upbit to compensate users.”

Meanwhile, FSS officials found that Upbit reported the incident at 10:58 a.m., more than six hours after it occurred, which coincided with the completion of a merger between its parent company Dunamu and Naver Financial. This raised suspicions of intentional reporting delays.

System Failures Cause 5 Billion KRW in User Losses, South Korean Regulators Propose Heavy Penalties

According to documents submitted by the FSS to the National Assembly, since 2023, the five major exchanges—Upbit, Bithumb, Coinone, Korbit, and Gopax—have collectively experienced at least 20 system failures, affecting over 900 users and causing cumulative losses exceeding 5 billion KRW. Upbit alone had six incidents, impacting over 600 users.

The government is fast-tracking legislation, with the draft strengthening IT security requirements, mandating regular system and personnel upgrades, and considering penalty standards consistent with banks, including heavy fines of “up to 3% of annual revenue,” rather than the current cap of 500 million KRW.

Stablecoin Legislation Urged to Accelerate, National Assembly Issues Final Ultimatum

Meanwhile, the South Korean National Assembly has also demanded financial regulators submit a draft stablecoin bill by December 10, or lawmakers will propose their own. Stablecoin regulation is seen as another major gap in South Korea’s crypto market, with official plans to discuss it as early as a special parliamentary session in 2026.

(South Korean regulators consider allowing companies to independently issue KRW stablecoins; all five major banks preparing)

Now, with the Upbit incident and frequent system failures, the South Korean government recognizes the market has outgrown the current regulatory framework, forcing a comprehensive acceleration of the legislative timeline.

This article, “Upbit Hack Fallout! South Korea Urges Legislation to Treat Exchanges Like Banks, Require No-Fault User Compensation,” first appeared on Chain News ABMedia.