TLDR
- South Korea plans to implement stricter regulations for crypto exchanges following the $30M hack at Upbit.
- The Financial Services Commission proposes no-fault liability, requiring exchanges to reimburse customers for losses.
- Upbit’s hack is believed to have been orchestrated by North Korea’s Lazarus Group, exploiting internal security weaknesses.
- South Korea’s regulators are pushing for tougher IT security standards and expanded audit procedures for crypto exchanges.
- Upbit faces criticism for its delayed response to the breach, waiting six hours before notifying authorities.
South Korea plans to introduce stringent regulations for cryptocurrency exchanges following a massive hack at the country’s leading platform, Upbit. The Financial Services Commission (FSC) has proposed new measures that will hold crypto exchanges accountable for security failures. These changes follow a breach that resulted in a $30 million loss, believed to have been orchestrated by North Korea’s Lazarus Group.
South Korea Targets No-Fault Liability for Crypto Exchanges
The recent Upbit hack on November 27 highlighted vulnerabilities within the country’s cryptocurrency industry. South Korean regulators now push for a no-fault liability rule, which would require exchanges to reimburse customers for losses caused by breaches, regardless of direct responsibility. “The government wants exchanges to assume greater responsibility for cybersecurity risks,” stated a regulatory official.
The proposed changes would also introduce stricter IT risk management standards and more comprehensive audit procedures for exchanges. The Financial Supervisory Service (FSS) has emphasized that security lapses like those exposed in the Upbit hack must be prevented in the future. “System security is the lifeline of virtual assets,” said Chan-jin Lee, FSS Governor, in a recent statement.
Under the new rules, crypto exchanges could face fines up to 3% of their annual revenue if found negligent during a breach. These fines aim to push the industry to prioritize cybersecurity. Upbit’s delayed response to the hack, waiting six hours before notifying authorities, has intensified calls for more robust regulations.
North Korea’s Lazarus Group Involved in Upbit Hack
The Upbit hack is believed to have been carried out by North Korea’s Lazarus Group, known for its cyber espionage activities. According to experts, the breach likely involved compromised administrator credentials, suggesting internal weaknesses rather than blockchain vulnerabilities. “Lazarus has proven they can adapt quickly to emerging technologies like cryptocurrency,” said Robert Sanchez, a financial crime expert.
Sanchez explained that modern attackers, including Lazarus, often use AI tools and impersonation tactics to target vulnerable platforms. These attackers gather information about platform administrators to exploit internal systems. Upbit’s failure to secure administrative access, particularly its credentials, raised questions about internal security practices.
The attack on Upbit is part of a broader trend of rising cyber attacks targeting South Korea’s financial sector. From October last year to September this year, 86 cyberattacks linked to North Korea were recorded, according to a report by AhnLab. The Lazarus Group has targeted Upbit before, stealing $49 million in 2019, though losses were not attributed to user accounts.
Growing Pressure on South Korea’s Crypto Industry
The recent breach has also exposed the financial strain that crypto exchanges in South Korea are facing. Many smaller crypto businesses struggle with compliance costs due to the country’s stringent regulations. Louis Ko, CEO of Bitcoin startup Nonce Lab, noted that the high costs of meeting security standards, such as the Information Security Management System (ISMS), hinder smaller firms.
The ISMS certification alone costs around 100 million KRW annually, which poses a barrier for startups in the crypto sector. South Korea’s tightening regulatory environment could further squeeze smaller exchanges, making it difficult for them to operate profitably. Ko added that these pressures could push smaller firms to consider moving abroad or resort to illegal activities like underground trading.
Despite these challenges, South Korea’s government is pushing forward with amendments to the Virtual Asset User Protection Law. The law, which will be updated in the first half of 2026, aims to improve security measures and prevent financial crimes in the cryptocurrency sector. As part of the plan, South Korea is also stepping up its efforts to align its regulations with the Financial Action Task Force (FATF).
The proposed changes, particularly the no-fault liability rule, reflect South Korea’s growing frustration with security failures at major exchanges like Upbit. With cyber threats like those from Lazarus becoming more sophisticated, regulators are determined to ensure that the country’s crypto industry becomes more secure and responsible.
Upbit has pledged to reimburse customers for the stolen funds and has frozen $1.77 million in assets linked to the breach. However, tracing and recovering stolen funds remains a challenging task, as Lazarus Group is known for its use of crypto mixers to launder stolen assets.
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