South Korea’s Virtual Assets Commission (VAC), which was launched a year ago to regulate the cryptocurrency sector, has ceased operations and has not held a meeting since May.
summary
- South Korean regulators are planning to impose strict liability rules on cryptocurrency exchanges to strengthen investor protection following the Upbit hacking incident.
- The proposed rules would require exchanges to compensate users for losses caused by hacks or system failures, without proving negligence, similar to laws in high-risk industries.
- This new bill was enacted at a time when the VAC was in a dark place following the impeachment of President Yoon Seok-yeol.
korean newspaper Kookmin Ilbo It is reported that the government is placing more emphasis on revitalizing the stock market than deregulating virtual currencies.
VAC’s suspension of activities was due to political changes after President Yoon Seo-gyul’s impeachment, and his successor Lee Jae-myung adopted a different encryption policy. The Lee government now appears to be sidelining the VAC in favor of working with lawmakers and the Financial Services Commission (FSC).
The original roadmap to allow stock market-listed companies to buy cryptocurrencies by 2025 looks increasingly unlikely.
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South Korea: new rules and regulations
Meanwhile, South Korean regulators have announced plans to impose strict liability rules on cryptocurrency exchanges, a move that follows the hacking incident at Upbit, the country’s largest digital asset platform, according to a government statement.
The Financial Services Commission (FSC) has confirmed the inclusion of this measure in the upcoming Virtual Assets Act, which aims to strengthen investor protection, it said.
The principle of strict liability requires companies to make restitution without proof of negligence or wrongdoing. Legal experts say the scheme provides compensation to victims without requiring them to prove fault.
According to regulatory documents, South Korea is currently applying this approach to high-risk industries, including car accidents and hazardous industrial activities.
Under the proposed rules, exchanges would be required to compensate users for losses caused by hacks or system failures. According to the bill, unless the user commits gross negligence, the company will be liable regardless of the company’s negligence.
This regulatory framework reflects the regulation of traditional financial institutions in Korea under the Electronic Financial Transactions Act. Legal analysts say crypto platforms currently operate outside the law’s jurisdiction, creating regulatory gaps that leave investors without legal protection.
The Upbit incident highlighted this weakness and led to calls for reform. Financial Supervisory Service (FSS) Director Lee Chang-jin acknowledged this gap, stating that system security is the “lifeblood of the virtual resource market.”
Data collected by regulators reveals the extent of the problem. From 2023 to September 2025, 20 cyber incidents were reported affecting over 900 users across five major exchanges. According to FSS data, Upbit recorded 6 incidents impacting 616 users, Bithumb reported 4 incidents impacting 326 users, and Coinone reported 3 incidents impacting 47 users.
The Upbit attack occurred between 4:42 AM and 5:36 AM (KST) on November 27th and lasted for 54 minutes. Transaction records show that large amounts of Solana-based coins were transferred to external wallets during the breach.
Regulators found no legal basis to directly sanction exchanges under the current Virtual Asset User Protection Act, the FSC reported.
The new law will require crypto platforms to meet the same security standards as traditional financial institutions. Under the proposed framework, exchanges would be required to maintain sufficient staff, facilities, and a robust IT infrastructure and submit annual technology plans to regulators.
Under the proposed amendments, fines would increase significantly, with fines reaching up to 3% of a company’s annual turnover, according to regulatory documents.
Industry insiders say the ruling party has expressed support for investor protection measures and are hoping for quick approval of the bill. Exchanges are reportedly preparing to adjust their compliance strategies in line with the expected changes.
read more: Analysts warn of crypto panic, banks push back against political ‘demonetization’ claims
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