South Korea to Allow Crypto Exchanges to Freeze Funds During Suspected Hacks

New rules to protect crypto investors from hacking

South Korea’s Financial Services Commission (FSC) plans to allow cryptocurrency exchanges—platforms where users buy and sell digital coins—to stop withdrawals and deposits if they suspect a hack is happening. Under current rules, exchanges are generally prohibited from blocking user access to funds unless a hacking incident is clearly proven.

The regulator plans to issue a letter that permits these preventive freezes under specific conditions. This change is designed to let exchanges act quickly to stop potential thefts before assets are moved off the platform.

Major changes for South Korean crypto platforms

• Exchanges can freeze funds during suspected threats rather than waiting for a breach to be confirmed.
• Platforms must hold more assets in cold wallets, which are offline storage systems used to keep digital assets safe from online hackers.
• Exchanges are required to increase their insurance coverage and financial reserves.
• Companies that cannot provide 24/7 monitoring must limit deposits and withdrawals to staffed hours and inform users in advance.

The Financial Services Commission's new security standards

The FSC stated that it is pushing for stronger security across the industry. This includes a requirement for round-the-clock monitoring and faster incident response times. In a recent review of 555 financial companies, the regulator identified cybersecurity weaknesses at 130 of them.

Recent security threats drive policy change

The move follows several recent security incidents at South Korean exchanges. In October, the platform Prabang suspended services after noticing unusual withdrawals from its hot wallets—online storage used for quick transactions—resulting in a loss of about $70,000.

More recently, the exchange GOPAX suspended trading and withdrawals after receiving a hacking threat. While no breach actually occurred at GOPAX, the exchange took the suspension as a precaution. Both Prabang and Streami, the operator of GOPAX, were named by regulators as companies involved in previous security incidents.

Improving safety for digital assets

The new policy aims to shift the focus from reacting to hacks toward preventing them. By allowing exchanges to freeze funds as soon as a threat is detected, regulators hope to reduce the amount of money lost to cyberattacks. This matters for crypto users because it provides an extra layer of protection during high-risk security events.

Sources

• Cointelegraph