South Korea plans to allow crypto exchanges to freeze withdrawals in cases of suspected hacker attacks

South Korea announces plans to allow cryptocurrency exchanges to temporarily block deposits and withdrawals when they suspect a hack, enabling the platforms to take preventive measures before the security vulnerabilities are confirmed.

• South Korea plans to allow cryptocurrency exchanges to suspend withdrawals when they suspect a hack attack.
• The Financial Services Commission of Korea ( FSC ) will issue a "No Action Letter" to provide safeguards for preventive restrictive measures under specific security conditions.
• Exchanges must strengthen their monitoring systems and limit transaction processing when continuous supervision is not possible.
• South Korea currently requires exchanges to store at least 80% of customers' cryptocurrencies in cold wallets.
• The Financial Security Service of South Korea plans to expand the scope of inspections to cover cryptocurrency wallets, blockchain infrastructure, and transaction controls.

The Financial Services Commission of South Korea announced on Thursday that it would issue a "no-action letter" allowing exchanges to suspend trading under certain conditions when suspicious activities indicate the potential for cyberattacks. The decision was made following a security meeting held in Seoul, which was chaired by the vice-chairmen of the Financial Services Commission, Shin Jin and chang.

Before the introduction of this proposed license, several security incidents occurred at various cryptocurrency exchanges in South Korea, including GOPAX suspending services for preventive purposes, as well as the intrusion into the hot wallet of Prabang.

South Korea plans to allow freezing of withdrawals due to hacker threats

According to South Korea's current 'Virtual Asset User Protection Act', cryptocurrency exchanges are not allowed to restrict customers' deposits and withdrawals without legitimate reasons. The law does permit the suspension of related services when a hacker attack is clearly confirmed.

However, these regulations also leave room for uncertainty: it is not clear whether exchanges can stop transactions in advance before confirming that an attack has occurred when they detect abnormal transfers or suspicious account activities.

The Financial Services Commission stated that prompt intervention when exchanges face potential security vulnerabilities can prevent further losses.

To eliminate this uncertainty, regulatory authorities have decided to issue a 'No Action Letter', allowing operators to suspend recharges and withdrawals in cases of suspected hacker attacks or unauthorized access.

This letter will provide regulatory assurance for preventive suspension measures that meet certain conditions, but it does not imply that exchanges will have the unrestricted power to freeze customers' funds.

Cryptocurrency exchanges will face stricter security requirements

In addition to withdrawal rules, South Korean regulatory authorities also hope that cryptocurrency exchanges will strengthen their monitoring systems and be able to respond more quickly to potential attacks.

The Financial Services Commission requires continuous monitoring throughout the day to reflect the 24-hour trading characteristics of the cryptocurrency market.

Exchanges need to assign personnel who are capable of investigating suspicious transactions and take immediate action when abnormal activities indicate potential security issues.

Platforms that are unable to maintain 24/7 monitoring must process recharges and withdrawals only during the hours when their security team is available.

Exchanges that are affected need to inform their customers in advance and have sufficient staff on hand to process withdrawal requests promptly.

Regulators also require operators to store more customer assets in offline storage and to review their insurance coverage and financial reserves.

South Korea currently requires virtual asset service providers to keep at least 80% of their customers' cryptocurrencies in cold wallets.

The Financial Services Commission stated that the overall storage proportion of cold wallets in the industry has exceeded 95%, although the specific proportions vary among different exchanges.

According to previous reports by crypto.news, after a security vulnerability was discovered in Binance in October, South Korean authorities considered tightening storage requirements.

According to the new guidelines, exchanges should limit the balance in hot wallets to a level that is necessary for daily operations and consider distributing funds across multiple wallets.

The Financial Services Commission hopes that operators will maintain sufficient insurance and reserves to compensate customers affected by hacking incidents.

GOPAX Service Suspension and Recent Hacker Incidents Drive Regulatory Actions

Before the introduction of these proposed measures, South Korean cryptocurrency companies had already encountered a series of security threats one after another.

On November 6th, GOPAX suspended cryptocurrency trading, recharging, and standard withdrawal services after receiving an email threatening a cyberattack.

During the investigation of the threats, the exchange began to transfer customer assets to cold wallets.

GOPAX indicates that no actual attempts at hacking or any theft of cryptocurrencies were detected during the service suspension.

Customers can still apply for withdrawals through customer service channels, but each request requires manual verification.

On October 24th, another South Korean cryptocurrency exchange, Prabang, suspended its operations after detecting abnormal withdrawals from its hot wallets.

The platform reported a loss of approximately $70,000 and stated that it will use company funds to compensate the affected customers.

The Financial Services Commission previously pointed out that financial institutions, including cryptocurrency companies, generally have weak security measures.

At the meeting on November 12th, Shin stated that virtual asset companies, being responsible for storing and managing customer assets, should maintain security standards comparable to those of traditional financial institutions.

South Korea plans to further carry out encryption security inspections

The Financial Services Commission intends to introduce more cybersecurity obligations through the proposed Digital Assets Act.

The legislation will require cryptocurrency companies to meet the IT security standards and to assume liability for damages equivalent to that of financial institutions.

At the same time, regulatory authorities also expect exchanges to report promptly to the financial authorities when they suspect security vulnerabilities or detect attempts at abnormal external access.

The Financial Security Service of South Korea will expand its security support for cryptocurrency companies, including threat intelligence, vulnerability assessment, and professional training.

Currently, among the 28 registered virtual asset service providers, only 5 Korean won market exchanges have joined this organization.

The Financial Services Commission plans to encourage more institutions to join, while providing alternative support for operators who are unable to do so.

The Korea Financial Security Agency will update its security inspection standards by the end of 2026, covering transaction verification, wallet access control, blockchain systems, and smart contracts.