South Korea adjusts exchange freeze rules for suspected hacks

South Korea's Financial Services Commission (FSC) now permits crypto exchanges to halt deposits and withdrawals when a hack is merely suspected rather than confirmed. This gives Korean traders faster protection against theft but also introduces uncertainty over when they can access their coins.

The FSC also aims to bring all 28 registered crypto businesses into the Financial Security Institute (FSI), the state-run cybersecurity auditor for the sector. However, the FSI disclosed a breach of its own systems this week.

Why Can a Suspected Hack Now Trigger a Freeze?

Under Korea's crypto investor-protection law, exchanges cannot block withdrawals without valid reasons. Previously, only a clear hack met that threshold.

Trading platforms told regulators that stopping withdrawals due to suspicious activity fell into a legal gray area. The FSC responded with a no-action letter, a written commitment not to penalize the practice.

Authorities cited Binance as an example where speed determined the scale of losses. Attackers took roughly $6.3 billion from the exchange in late October, a theft the FBI linked to North Korea.

Domestic pressure has also been mounting. Bithumb revealed a personal data leak from an internal mobile system in late October. GOPAX then suspended trading and withdrawals on November 6 after a hacking threat.

Can a Hacked Watchdog Protect South Korea's Crypto Exchanges?

Only five won-trading exchanges are currently members of the FSI. The FSC wants the remaining 23 to join or receive similar services, such as vulnerability checks.

This push comes at an awkward time. On Monday, the FSI confirmed that hackers had breached the online portal used by financial firms to submit security-audit paperwork.

Stolen files may include those firms' own responses to FSI security assessments. The FSI stated that the portal is separate from its core network, and regulators are still determining what was taken.

The new guidelines also encourage exchanges to keep hot wallet balances as low as possible and to increase insurance and reserves. Operators already hold more than 95% of client assets offline, above the 80% legal minimum.

Permanent rules depend on the proposed Digital Asset Act, which would impose bank-level IT obligations and liability for damages on exchanges. Until it is enacted, Seoul governs through guidelines, relying on a security partner still investigating its own breach.