South Korea is gearing up for a sweeping overhaul of its cryptocurrency regulations, aiming to impose bank-level liability on digital asset exchanges in a move that could reshape the industry’s landscape across Asia. The country’s Financial Supervisory Service (FSS) is at the heart of this regulatory push, responding to a series of high-profile security lapses and system failures that have shaken public confidence in the burgeoning crypto sector.
According to a December 8, 2025 report by CoinMarketCap Academy, the FSS is preparing to enforce rules by 2026 that would require cryptocurrency platforms to compensate customers for losses due to hacks or system malfunctions—regardless of whether the exchange itself was at fault. This approach mirrors the strict standards already applied to banks and electronic payment firms under South Korea’s Electronic Financial Transactions Act.
The catalyst for the new regulations was a major incident involving Upbit, South Korea’s largest cryptocurrency exchange, and its parent company Dunamu. On November 27, 2025, more than 104 trillion won worth of Solana tokens—approximately $44.5 billion—were transferred to an external wallet in under an hour. This event exposed significant gaps in consumer protection for crypto users, especially when compared to the robust safeguards enjoyed by traditional bank customers. The Korea Times reported that the breach not only highlighted vulnerabilities but also spurred urgent calls for regulatory reform.
But the Upbit hack was not an isolated case. Data provided to lawmakers by the FSS revealed that South Korea’s five leading crypto exchanges have collectively reported 20 system failures since 2023, affecting over 900 users and resulting in more than 5 billion won in losses. Upbit alone was responsible for six of these incidents, impacting 600 customers. Such frequency has fueled debate over whether exchanges are investing enough in their IT infrastructure and operational standards to keep pace with the industry’s rapid growth.
Under the proposed rules, crypto exchanges could face fines of up to 3% of annual revenue for hacks or operational failures, aligning penalties with those imposed on banks. Currently, the maximum fine for a crypto platform in South Korea is capped at just $3.4 million—a sum many critics argue is insufficient to deter negligence or incentivize meaningful upgrades.
The political stakes are also high. Lawmakers have criticized Upbit and Dunamu for delays in reporting the breach. Although the hack was detected shortly after 5 a.m. local time, the FSS was not notified until nearly 11 a.m. Some legislators have even suggested that the delay was intentional, coinciding with Dunamu’s completion of a merger with Naver Financial. These allegations underscore growing concerns over transparency and accountability in the crypto sector.
“The frequency of these incidents calls into question the operational standards and infrastructure investments across the industry,” noted a recent report from The Korea Times. This sentiment has been echoed by politicians and regulators alike, who are determined to close the gap between the protections offered to crypto investors and those available to traditional bank customers.
In addition to these changes, South Korea is moving forward with regulations targeting stablecoins—digital assets pegged to traditional currencies like the U.S. dollar or Korean won. Lawmakers are pressing the FSS to introduce a comprehensive stablecoin bill by December 10, warning that they will proceed independently if the agency misses the deadline. The government hopes to bring the legislation to the floor during a special session of the National Assembly in January 2026, with enforcement expected later that year.
The urgency for stablecoin oversight is not unfounded. The rapid proliferation of these assets has raised alarms globally, as their stability and widespread adoption could pose systemic risks if left unchecked. South Korea’s approach aims to strike a balance between encouraging innovation and protecting investors—a tightrope walk that regulators worldwide are attempting to navigate.
According to CoinMarketCap Academy, Upbit currently commands a 44.5% market share in South Korea, with a transaction volume of 104 trillion won. Its dominance, coupled with recent security lapses, has made it a focal point for both regulatory scrutiny and public debate. The FSS’s plan to enforce stricter rules is intended not only to restore confidence but also to set a new benchmark for operational excellence in the sector.
The impending regulations will require exchanges to adopt more rigorous IT security measures, elevate operational standards, and face stiffer penalties for lapses. The goal, officials say, is to ensure that digital asset platforms offer the same level of safety and reliability as traditional financial institutions. “We are determined to implement measures that will protect investors and foster a healthy digital asset market,” an FSS spokesperson was quoted as saying.
Yet, not everyone is convinced that regulation alone will solve the sector’s challenges. Some industry insiders warn that overly stringent rules could stifle innovation or drive trading activity offshore, where oversight may be weaker. Others argue that the reforms are overdue and necessary to prevent further erosion of trust. The debate reflects the broader tension between fostering a dynamic fintech ecosystem and safeguarding public interests.
Meanwhile, the government’s efforts have drawn international attention. South Korea’s proactive stance is being closely watched by regulators in other jurisdictions, many of whom are grappling with similar issues. The country’s experience could serve as a blueprint—or a cautionary tale—for how to manage the risks inherent in digital asset markets.
In the coming months, all eyes will be on the National Assembly as lawmakers debate the details of the new regulatory framework. The outcome will have far-reaching implications not just for South Korea’s crypto industry, but for global standards in digital finance. With enforcement slated for 2026, exchanges, investors, and regulators alike are bracing for a new era—one where accountability, transparency, and consumer protection take center stage.
As South Korea moves to bridge the regulatory gap between banks and crypto exchanges, the world will be watching to see whether these reforms can truly deliver on their promise of a safer, more transparent digital asset marketplace.
