South Korea has announced plans to let cryptocurrency exchanges temporarily block deposits and withdrawals when they suspect a hacking attempt, allowing platforms to take preventive action before a security breach is confirmed.
Summary
- South Korea plans to allow cryptocurrency exchanges to suspend withdrawals when hacking attempts are suspected.
- The FSC will issue a no-action letter covering preventive restrictions under specified security conditions.
- Exchanges must strengthen monitoring systems and restrict transaction processing when continuous supervision is unavailable.
- South Korea currently requires exchanges to hold at least 80% of customer cryptocurrency in cold storage.
- The Financial Security Institute plans additional inspections covering cryptocurrency wallets, blockchain infrastructure and transaction controls.
In a Thursday announcement, the Financial Services Commission (FSC) said it would issue a no-action letter permitting exchanges to suspend transactions under certain conditions when suspicious activity suggests a possible cyberattack. The decision followed a security meeting chaired by FSC Vice Chairman Shin Jin-chang in Seoul.
The proposed permission comes after several security incidents involving cryptocurrency exchanges, including GOPAX’s precautionary suspension of services and a hot-wallet breach at Prabang.
South Korea to allow withdrawals to be frozen over hacking threats
Under South Korea’s existing Virtual Asset User Protection Act, cryptocurrency exchanges cannot restrict customer deposits and withdrawals without legitimate grounds. The law permits suspensions when a hacking incident is clearly established.
However, the rules have left uncertainty over whether exchanges can stop transactions before confirming an attack, particularly when they detect unusual transfers or suspicious account activity.
The FSC said rapid intervention can prevent further losses when an exchange faces a possible security breach.
To address the uncertainty, the regulator decided to issue a no-action letter allowing operators to suspend deposits and withdrawals when hacking or unauthorized access is suspected.
The letter would provide regulatory assurance for preventive suspensions that meet the specified conditions. It would not give exchanges unrestricted authority to freeze customer funds.
Crypto exchanges face tougher security requirements
Beyond the withdrawal rules, South Korean regulators want cryptocurrency exchanges to strengthen their monitoring systems and respond more quickly to potential attacks.
The FSC called for continuous monitoring throughout the day, reflecting the cryptocurrency market’s 24-hour trading schedule.
Exchanges would need responsible personnel available to investigate suspicious transactions and take immediate action when unusual activity suggests a security problem.
Platforms unable to maintain round-the-clock monitoring would have to process deposits and withdrawals only during hours when their security teams are available.
Affected exchanges would need to inform customers in advance and assign sufficient personnel to handle withdrawal requests promptly.
The regulator instructed operators to keep more customer assets in offline storage and review their insurance coverage and financial reserves.
South Korea currently requires virtual asset service providers to hold at least 80% of customer cryptocurrency in cold wallets.
According to the FSC, the industry’s overall cold-wallet storage ratio already exceeds 95%, although individual exchanges maintain different proportions.
As crypto.news previously reported, authorities considered tighter storage requirements following Binance’s October security breach.
Under the new guidance, exchanges should limit hot-wallet balances to the amounts needed for routine transactions and consider spreading funds across multiple wallets.
The FSC wants operators to maintain sufficient insurance and reserves to compensate customers affected by hacking incidents.
GOPAX suspension and recent hacks prompt regulatory action
The proposed measures follow a series of security threats affecting South Korean cryptocurrency businesses.
On November 6, GOPAX suspended cryptocurrency trading, deposits and standard withdrawals after receiving an email threatening a cyberattack.
The exchange began transferring customer assets into cold wallets while investigating the threat.
GOPAX said it had not detected an actual hacking attempt or cryptocurrency theft when it suspended services.
Customers could request withdrawals through support channels, although each request required manual verification.
On October 24, another South Korean cryptocurrency exchange, Prabang, suspended operations after detecting abnormal withdrawals from its hot wallet.
The platform reported losses of approximately $70,000 and said it would compensate affected customers using company funds.
The FSC has previously identified security weaknesses across financial institutions, including cryptocurrency businesses.
At the November 12 meeting, Shin said virtual asset companies should maintain security standards comparable to traditional financial institutions because they store and manage customer assets.
South Korea plans further crypto security inspections
The FSC intends to introduce additional cybersecurity obligations through its proposed Digital Assets Act.
The legislation would require cryptocurrency businesses to meet IT security standards and assume liability for damages comparable to financial institutions.
Meanwhile, the regulator wants exchanges to report suspected breaches and unusual external access attempts promptly to financial authorities.
South Korea’s Financial Security Institute will expand security support for cryptocurrency businesses, including threat intelligence, vulnerability assessments and specialist training.
Currently, only five won-market exchanges among 28 registered virtual asset service providers have joined the institute.
The FSC plans to encourage additional memberships while offering alternative support to operators unable to join.
The institute will update its security inspection standards by the end of 2026, covering transaction verification, wallet access controls, blockchain systems and smart contracts.
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