South Korea plans to require crypto exchanges to undertake "no-fault compensation obligations", and Upbit's hacking incident is the fuse

The South Korean government is pushing ahead with legislation that would introduce banking-like "no-fault compensation" rules for major cryptocurrency exchanges. The Financial Services Commission (FSC) is understood to be reviewing requiring virtual asset service providers to be liable even if they are not at fault in the event of a hacking attack or system failure that results in user losses. Such mandatory compensation currently applies only to traditional Financial Institution Groups and electronic payment companies.
The policy movement stems from a security incident on the Upbit platform. About 44.50 billion won (about 30.10 million US dollars) of assets were transferred to an external wallet within 54 minutes, and the regulatory authorities could not force the platform to pay compensation under the current regulations. The Korean financial regulator also pointed out that the crypto trading industry has experienced frequent system failures in recent years. According to the data, from 2023 to September this year, there were 20 system failures in the five major exchanges, affecting more than 900 users, and the cumulative loss was about 5 billion won, of which Upbit accounted for 6, and the loss amount was about 3 billion won.
The draft also proposes to increase technical security requirements and raise the limit of fines for hacking incidents to 3% of annual revenue, the same as the traditional Financial Institution Group, and higher than the current fixed limit of 5 billion won. In addition, the Upbit incident has also sparked controversy over "delayed reporting". The platform discovered the anomaly at 5am, but reported it to the regulator at 10:58, prompting some lawmakers to question its intention to wait for the merger process between the parent company Dunamu and Naver Financial to be completed before disclosing. Regulators are investigating the matter, but it is not expected to impose severe penalties under the current framework.