South Korean central bank investigates financial institutions' exposure to crypto risks

It is reported that the Bank of Korea has for the first time launched investigations into banks and securities firms regarding cryptocurrency-related risks, asking how they would be affected if large exchanges were to suffer major hacker attacks, the market collapsed, or another financial institution incurred huge losses.

According to Herald Business and reports by Yonhap News, citing financial industry sources, the Bank of Korea began investigating 18 banks and 13 securities firms on October 23. This is the first time that the bank has been reported to be conducting reviews of financial institutions' involvement in the virtual asset market.

The investigation includes: the human resources allocation and budget related to encryption for each institution, business activities and the reasons for entering this market, as well as the amount of investment in domestic and foreign crypto companies.

One of the scenario questions is: If South Korea's largest cryptocurrency exchange, based on market share, were to temporarily cease operations due to a major hacker attack or a similar incident, what impact would it have on financial institutions?

Other issues involve the prolonged slump in trading following a significant drop in cryptocurrency prices, as well as the potential chain reactions that could arise if another financial institution suffers substantial losses due to crypto-related events.

This investigation began before last week's $6.3 billion Binance hack, but that incident highlighted the types of risks that the South Korean central bank is examining. U.S. authorities have attributed this attack to North Korean hackers.

It is reported that relevant responses must be submitted by Wednesday.

Korean Bank explores stablecoins amid regulatory delays

This review comes at a time when Korean financial institutions are continuously testing stablecoin services.

KB Financial Group completed a pilot project for KRW-denominated stablecoins in May; Kakao Pay and KakaoBank collaborated with Fireblocks in September to explore digital asset infrastructure.

The Bank of Korea has been advocating for banks to lead the issuance of stablecoins, but disagreements over which institutions should be allowed to issue them have complicated the advancement of the proposed "Digital Assets Basic Act."

An official from the South Korean central bank told The Korea Herald, "Although the progress of virtual asset legislation is slower than market expectations, financial institutions are still making their own preparations."

Regulatory authorities have also strengthened their scrutiny of cybersecurity. In October, after discovering that 130 out of 555 financial companies had deficiencies, the Financial Services Commission proposed to raise security requirements.

These proposals include conducting vulnerability assessments more frequently, as well as strengthening accountability for senior executives. Previously, security incidents have occurred in 16 companies, including cryptocurrency exchanges.

Relevant report: FBI claims that the record-breaking $6.3 billion Binance hack was carried out by North Korea.