South Korea Enforces Investor Protection with No-Fault Liability Rules
Crypto exchanges in South Korea are set to face stricter regulations, as authorities work to safeguard investors in the wake of significant hacking incidents. The latest developments highlight the introduction of no-fault liability rules, which mandate compensation for victims of financial losses caused by system failures or hacking—regardless of negligence.
What is No-Fault Liability?
No-fault liability ensures victims receive compensation without needing to prove fault on the exchange’s part. This concept, commonly seen in motor vehicle laws and high-risk industries, offers fast and predictable payouts to those affected. South Korea now applies this principle to the dynamic and often risky realm of cryptocurrency trading.
Triggering Change: The $28 Million Upbit Hack
The move towards stricter regulations follows the high-profile Upbit hack, where $28 million in funds were stolen from the exchange. Over 600 users were affected, with inadequate legal frameworks leaving them without sufficient protection. South Korea’s Financial Services Commission (FSC) aims to close these gaps by imposing financial-grade security standards on cryptocurrency platforms.
The Need for Reform
Data from 2023 to September 2025 revealed that major South Korean exchanges experienced 20 IT-related incidents, impacting over 900 users and resulting in losses exceeding $29 million. Exchanges like Bithumb and Coinone also reported multiple breaches, further underscoring systemic vulnerabilities in the nation’s crypto sector.
Key Highlights of the Proposed Legislation
- Exchanges must compensate users for losses caused by security breaches, unless gross negligence by users is proven.
- Stronger IT standards, staffing requirements, and regulatory reporting obligations.
- Fines for non-compliance to increase to as high as 3% of annual revenue.
- Mandatory submission of yearly technological infrastructure plans to regulators.
Impact on the Crypto Industry
Stricter security measures are expected to boost investor confidence while compelling exchanges to upgrade their systems to meet financial-grade standards. Already, exchanges are actively preparing compliance strategies in anticipation of these legislative changes. For example, platforms may consider partnering with cybersecurity providers, such as Kaspersky, which offers advanced solutions to counter hacking risks.
Why This Matters
Increasing investor protection aligns with South Korea’s broader vision of creating a safer and more reliable virtual asset market. Regulators hope these measures will detour malicious actors and strengthen the integrity of the country’s digital economy. Already, the ruling party has expressed strong support for rapid implementation.
Stay Informed
For crypto investors and traders, staying updated on regulatory shifts is crucial. Enhanced security measures not only benefit users but could also set a global precedent for safeguarding digital assets in the rapidly evolving cryptocurrency landscape.
