South Korea Proposes Banking-Style No-Fault Compensation for Crypto Exchanges After Upbit Hack

South Korea is advancing legislation to establish a banking-style no-fault compensation regime for major cryptocurrency exchanges. The FSC is weighing a rule that would require virtual asset service providers to cover losses even in no-fault scenarios arising from hacks or failures.

The move follows the Upbit incident on November 27, when about 44.5 billion won ($30.1 million) moved to an external wallet within 54 minutes. Existing rules could not compel compensation, highlighting recurring system failures across crypto platforms.

Draft changes would raise technical security requirements and set the hack-fine cap at 3% of annual revenue, matching traditional institutions and surpassing the current 5 billion won ceiling.

The Upbit case also sparked debate on delayed reporting; authorities learned of the anomaly at 5:00 a.m. and were notified at 10:58. Regulators are reviewing the timeline, with penalties under the current framework likely limited.