South Korea’s FSC Reviews Crypto Exchange Security, Weighs Broader Withdrawal Curbs After $6.3 Billion Binance Hack
Summary
- The Financial Services Commission said it has begun reviewing and improving the security systems of domestic virtual asset exchanges and the rules on withdrawal restrictions after the Binance hack.
- The industry asked for a legal basis that would allow swift withdrawal restrictions in emergencies such as an external exchange hack or a failure in an abnormal transaction monitoring system, and the FSC said it plans to review the request.
- The FSC said it plans to inspect hot wallet security and cold wallet custody ratios and strengthen its response system to prevent hacking incidents and contain the spread of losses.
Forecast Trend Report by Period
South Korea’s Financial Services Commission has begun reviewing the security systems of domestic crypto exchanges and possible changes to withdrawal restriction rules after the Binance hack.
According to financial authorities on November 3, the FSC held an emergency meeting a day earlier with domestic virtual asset service providers, led by Yoo Young-jun, director-general for digital finance policy. The meeting examined the Binance hack, which caused about $6.3 billion in losses, for its potential impact on the local market and checked each exchange’s security response.
At the meeting, industry participants called for broader conditions under which crypto withdrawals can be restricted. Under the current Virtual Asset User Protection Act, deposits and withdrawals can be blocked only when there is a legitimate reason specified by presidential decree. Participants said it is unclear whether exchanges can restrict withdrawals to protect users when a hack occurs at another exchange.
The industry asked for a clearer legal basis allowing exchanges to quickly halt withdrawals in emergencies, including hacks at external exchanges or failures in abnormal transaction monitoring systems. It also proposed adding such cases to the enforcement decree or clarifying regulatory standards through formal interpretations and no-action letters from financial authorities. The FSC plans to review those requests.
The regulator also inspected the security of exchanges’ internal systems. It focused on withdrawal approval and electronic signature procedures for hot wallets connected to the internet, as well as access controls for computer networks and administrator privilege settings. In the Binance case, concerns have been raised that security weaknesses in internal system access routes and transaction approval procedures may have been exploited.
The FSC also called for a higher share of assets to be kept in cold wallets to limit hacking losses. Cold wallets store virtual assets offline, separate from the internet. Under current law, domestic virtual asset service providers must keep at least 80% of customer assets in cold wallets, though actual custody ratios vary by exchange.
The FSC said it plans to work with related agencies and the industry to strengthen its response system to prevent additional hacking incidents and contain the spread of losses. It will also review the industry’s proposals on withdrawal restriction requirements with user asset protection and market stability in mind.
