South Korea to Allow Crypto Exchanges to Block Withdrawals Amid Hacking Threats

The Financial Services Commission of South Korea (FSC) announced on November 12 the preparation of a permit for the preventive suspension of cryptocurrency deposits and withdrawals in case of suspected hacking. Currently, the law on the protection of virtual asset users prohibits blocking transactions without sufficient grounds and explicitly provides for restrictions when the fact of an attack is established. The regulator's special clarification will allow exchanges to act earlier to reduce potential damage to clients.

What requirements the FSC will impose on crypto exchanges

The regulator proposed organizing round-the-clock monitoring of suspicious transactions and prompt response to incidents. Platforms that cannot provide constant monitoring should process deposits and withdrawals only during the hours when responsible specialists are present and notify clients in advance. Exchanges are also recommended to increase the share of assets in cold wallets, insurance coverage, and financial reserves. Currently, the cold storage standard is at least 80%, and the industry-wide figure, according to the FSC, exceeds 95%.

Why South Korea is tightening control

The reason was recent incidents on cryptocurrency platforms. On November 6, the GOPAX exchange suspended trading and withdrawals after receiving a letter threatening a hack, although there was no confirmation of an attack or loss of client assets at that time. The Prabang exchange discovered suspicious transactions with a hot wallet on October 24 and initially estimated the damage at approximately $70,000. These cases showed that waiting for final confirmation of a hack could hinder the timely protection of funds.

The FSC also intends to expand cybersecurity checks and the cooperation of crypto companies with the Korea Financial Security Institute. Currently, among the 28 virtual asset service providers, only five crypto exchanges are members of the institute. The timing of the issuance of the clarification and the exact conditions for its application have not yet been specified by the regulator.