Crypto exchanges in South Korea will soon have the leeway to suspend transactions before a hacking incident is fully confirmed. South Korea’s Financial Services Commission (FSC) is preparing to issue a no-action letter allowing exchanges to temporarily halt deposit and withdrawal services as a preemptive measure upon detecting signs of a cyberattack.
The move is designed to address a regulatory loophole that has constrained exchange response times when confronting security threats.
Legal Dilemma Behind the GOPAX and Prabang Cases
The new policy was decided during a security meeting chaired by FSC Vice Chairman Shin Jin-chang in Seoul. The meeting followed two closely timed events: an emergency system suspension at GOPAX triggered by cyber threats, and a hot wallet breach at Prabang exchange.
Prior to the planned issuance of this no-action letter, exchange operators faced regulatory uncertainty. Under the Virtual Asset User Protection Act, exchanges are barred from restricting customer withdrawals without justifiable grounds. This requirement left exchanges hesitant to act swiftly when detecting anomalous transactions. Waiting for definitive confirmation of a hack risked funds being drained, while freezing withdrawals without full evidence risked violating the law.
The issuance of the no-action letter provides direct legal protection for exchange operators. This legal shield enables operators to take rapid preventive measures to avert larger breaches of customer funds.
Mandatory 24-Hour Monitoring or Restricted Trading Hours
In addition to granting emergency suspension authority, the FSC is requiring all exchange platforms to run continuous 24-hour transaction monitoring systems, aligned with the crypto market’s round-the-clock operating schedule.
Exchanges unable to field a 24-hour security team must limit deposit and withdrawal services strictly to the monitoring team’s operational hours. Operators are also required to provide prior written notice to customers before enacting any operating-hour restrictions.
Hot Wallet Balance Limits and Insurance Reserves
The FSC is also tightening crypto asset custody standards. South Korean regulations require at least 80% of customer crypto assets to be stored in offline cold wallets. Across the industry, average cold wallet custody currently exceeds 95%.
Under the new guidelines, regulators are instructing exchanges to cap hot wallet balances strictly to the level needed for routine daily transactions. Funds held in online wallets must also be partitioned across multiple addresses to minimize the risk of mass exfiltration in the event of a breach.
Exchange operators were also instructed to build up financial reserves and expand insurance coverage to guarantee customer restitution should a hack breach their security defenses.
For crypto exchange users in South Korea, these rules provide stronger balance protection against hacking attempts, with the trade-off being potential transaction suspensions at any time when systems detect suspicious activity.
Reported by crypto.news.
Disclaimer: This article is for informational and educational purposes only, not financial advice. Cryptocurrency assets are highly volatile and carry significant risk. Always do your own research (DYOR) and never invest more than you can afford to lose.
