The Upbit liability review has become a defining point for South Korea’s digital asset sector, setting the stage for tighter rules on how exchanges respond to security incidents. The recent Solana hot wallet breach placed the country’s regulatory gaps in the spotlight, prompting financial authorities to reconsider how crypto platforms should manage user protection.

This shift is unfolding at a time when exchanges operate in a rapidly growing market, yet under frameworks that have not fully aligned with the risk profile of modern digital asset platforms. As regulators reassess their expectations, the discussion now centers on bringing crypto exchanges closer to the standards applied to banks and electronic financial firms.

Government Push Toward Bank-Level Compensation Rules

South Korean regulators are preparing to apply bank-grade, no-fault compensation rules to crypto exchanges following the Upbit incident. The Financial Services Commission (FSC) is reviewing provisions that would require platforms to compensate users for losses caused by hacks or system failures, even if the exchange is not directly responsible for the breach. This model currently applies only to banks and electronic payment firms, meaning the proposed change would significantly increase the obligations imposed on exchanges.

The move follows the November 27 breach where more than 104 billion Solana-based tokens, worth about 44.5 billion won, were transferred to external wallets in under an hour. While Upbit froze deposits and withdrawals and assured users that the losses would be covered by its reserves, regulators highlighted that the current law offers limited authority to enforce penalties or mandate compensation.

The Financial Supervisory Service (FSS) also noted a broader pattern of system failures across the country’s top five exchanges. From 2023 to September 2025, these platforms reported 20 incidents affecting over 900 users and causing more than 5 billion won in losses. Upbit accounted for six of those failures, involving more than 600 affected customers. Lawmakers are now considering fines of up to 3 percent of annual revenue for exchanges facing hacking incidents, aligning them with penalties applied to traditional financial institutions.

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Security Incident Raises Reporting and Oversight Questions

Beyond the financial impact, the breach raised concerns about delayed reporting. Although Upbit detected the suspicious transfer activity around 5 a.m., the platform did not notify authorities until nearly 11 a.m. Some lawmakers questioned the timing, noting that the disclosure came shortly after Dunamu concluded a major merger with Naver Financial.

Authorities have begun on-site inspections to understand the breach, but heavy sanctions appear unlikely under current rules. Officials acknowledged both the seriousness of the case and the limits of existing oversight. At the same time, Dunamu confirmed that the exchange has adequate reserves to reimburse affected balances and emphasized that customer assets remain protected, with cold storage funds left untouched.

Industry voices pointed out that platforms holding large amounts of user assets continue to attract attackers. Security firms recorded billions of dollars lost to hacks and exploits in 2025, reflecting a persistent risk environment. Exchange operators and hardware wallet providers reiterated that security remains a moving target, with incidents at major platforms underscoring the need for stronger standards and more reliable infrastructure.

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What This Means for Crypto Exchanges Going Forward

The Upbit liability review signals a turning point for South Korea’s approach to exchange oversight. Regulators are positioning crypto platforms closer to the obligations faced by banks, emphasizing user protection, fast reporting, and stronger system safeguards. If the no-fault compensation model is formally adopted, exchanges will need to invest more heavily in IT security, operational resilience, and risk management.

The incident also highlights the growing expectation that major trading platforms must maintain robust reserves, respond quickly to security incidents, and provide clarity to users during service disruptions. As lawmakers continue shaping the revised framework, exchanges operating in the country will face higher compliance demands, while users may gain stronger assurances in the event of future breaches.