South Korea Just Changed When Exchanges Can Freeze Your Crypto
South Korea's Financial Services Commission now permits crypto exchanges to freeze deposits and withdrawals when a hack is only suspected, not confirmed.
The new policy provides Korean traders with faster theft protection but reduces certainty about when their digital assets can leave an exchange. The FSC issued a no-action letter to exchanges, promising not to penalize them for halting withdrawals over suspicious activity.
Legal Grounds for Freezes
Korea's crypto investor-protection law previously required legitimate grounds for blocking withdrawals, with only confirmed hacks clearly qualifying. Exchanges had operated in a legal gray area when halting transactions over suspicious activity.
Auditor's Own Breach
The FSC wants all 28 registered crypto businesses to join the FSI, the sector's state-run cyber auditor. However, the FSI confirmed this week that hackers breached its online portal used by financial firms to submit security-audit paperwork.
Only five won-trading exchanges currently belong to the FSI. The stolen files may include firms' responses to FSI security assessments, though the FSI claims the compromised portal sits outside its core network.
New Security Requirements
The guidelines also push exchanges to maintain minimal balances in hot wallets and increase insurance and reserves. Most operators already hold over 95% of client assets offline, exceeding the 80% legal minimum.
Lasting rules depend on the proposed Digital Asset Act, which would impose bank-grade IT duties and damage liability on exchanges. Until it passes, Seoul is regulating by guideline while its security partner investigates its own breach.
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