South Korea’s Financial Services Commission will let crypto exchanges freeze deposits and withdrawals as soon as a hack is suspected, rather than only once one is confirmed. The regulator said on Thursday it would issue a no-action letter covering such pre-emptive freezes, closing a gap in the law that left exchanges unsure whether they could pull the plug on suspicion alone. It also told every exchange without round-the-clock monitoring to process deposits and withdrawals only during staffed hours.
What the no-action letter fixes
Korea’s Virtual Asset User Protection Act bars exchanges from blocking deposits and withdrawals without a legitimate reason, and only clearly allows it once a hacking incident is evident. Exchanges had told the regulator it was unclear whether they could act earlier, for example when abnormal transactions start showing up but no breach has been proved.
The FSC said the Binance theft showed why that matters. In crypto security incidents, a fast block is what keeps user losses down, the commission said in its release on Thursday’s security meeting, and so it decided to issue a no-action letter allowing exchanges to block deposits and withdrawals pre-emptively when a hack or intrusion is suspected. The letter will apply “under certain conditions.” The release does not spell those conditions out, and the letter itself has not yet been published.
A no-action letter does not change the statute. It is a statement that the regulator will not take enforcement action over the conduct it describes, which in practice gives exchanges cover until the law is rewritten.
Why it lands now
The question was not hypothetical. On Nov. 6, GOPAX halted deposits, withdrawals and then trading after receiving a threatening email from a group claiming a hack, even though it had not verified the threat and reported no loss, as we covered in our report on the GOPAX freeze. That is exactly the kind of suspicion-stage halt the FSC now wants to protect. Prabang, a smaller exchange, suspended services in October after abnormal hot-wallet withdrawals, Cointelegraph reported.
The bigger backdrop is Binance. FSC Vice Chairman Shin Jin-chang, who chaired the meeting, cited the $6.3 billion theft from the world’s largest exchange in his opening remarks and said some operators still think about security the way they did before the industry was regulated. He put the domestic market at about 66 trillion won, roughly $49 billion, in crypto held on Korean exchanges as of Nov. 5, with daily trading of 1.9 trillion won and just over 10 million users, a count that includes people with accounts at more than one exchange.
Staffed hours or round-the-clock monitoring
The meeting produced an emergency security guideline that applies before new legislation passes. Its first demand is constant monitoring. Exchanges must keep staff on duty around the clock and act immediately on unusual large transactions or other signs of an incident.
The FSC gave smaller operators a blunt alternative. An exchange that cannot run monitoring and response continuously should process deposits and withdrawals only during the hours when that system is working, tell users in advance, and staff up enough to handle requests on time. For some coin-only exchanges, that could mean withdrawals stop overnight.
The guideline also asks exchanges to keep only the minimum customer crypto needed for trading in hot wallets, to consider spreading that balance across several hot wallets, and to raise insurance limits and reserves. Exchanges must report intrusions, and even abnormal outside access attempts, to the authorities quickly.
Cold storage is already high in aggregate
The legal minimum for cold storage stays at 80%. The FSC said the industry as a whole already keeps more than 95% of customer crypto offline. That aggregate hides wide gaps between firms. Supervisory data from the end of September, reported when the FSC met exchanges on Nov. 2, put Upbit at 99.17% and GOPAX at 80.54%, just above the floor. A market leader holding almost everything in cold storage lifts the industry figure. It does not lift the smaller exchanges.
Security checks most exchanges never had
Only five of Korea’s 28 crypto service providers, the five won-market exchanges, are members of the Financial Security Institute, the body that provides threat-sharing and security audits to banks and other financial firms. The FSC wants the rest to join. Members will get vulnerability checks, threat intelligence and training. Firms that cannot join will get support on the scale offered to small financial companies.
That matters because crypto exchanges sit outside the Electronic Financial Transactions Act’s vulnerability-assessment rules and, beyond ISMS certification, face no separate inspection duty, the FSC said. It plans to revise its security checklist for exchanges by the end of the year, with separate sections on compliance, blockchain, wallets and smart contracts.
What to watch
The text of the no-action letter is the first thing to read, especially what counts as a “suspected” hack and how quickly exchanges must reopen. After that, watch which coin-market exchanges move to staffed-hours withdrawals, and the Digital Asset Act, which the FSC says will give exchanges bank-style IT safety duties and liability for damages.
FAQ
Can Korean exchanges now freeze withdrawals whenever they want?
No. The planned no-action letter covers pre-emptive freezes when a hack is suspected, under conditions the FSC has not yet published. Blocking withdrawals without a legitimate reason is still barred by law.
Will some Korean exchanges stop withdrawals at night?
Possibly. The FSC said exchanges that cannot monitor around the clock should process deposits and withdrawals only during staffed hours and notify users in advance.
Did the FSC raise the 80% cold wallet rule?
No. The legal minimum is unchanged. The regulator asked exchanges to keep hot-wallet balances to the minimum needed for trading.
Disclaimer: This article is for informational purposes only and does not constitute financial advice.
