South Korea Considers No-Fault Liability for Crypto Operators
- Main event: potential new liability and fine structure.
- No-fault liability proposed for crypto operators.
- Aligned penalties with financial institutions.
South Korea plans to impose no-fault liability on virtual asset operators for hacking incidents, aligning with bank standards. The Financial Services Commission intends to raise fines to 3% of annual sales revenue, mirroring the Electronic Financial Transactions Act.
The potential regulation signifies a major shift in responsibility for virtual asset operators, mirroring existing rules for financial institutions. It aims to heighten user protection and secure system reliability by enforcing stringent compensation measures.
South Korea’s Financial Services Commission (FSC) and the National Assembly are moving forward with legislation enforcing no-fault liability on virtual asset service providers (VASPs) for hacks and failures. If passed, fines could reach up to 3% of annual sales, aligning with standards under the Electronic Financial Transactions Act.
The proposed regime, highlighted by an FSC official, aims to synchronize virtual-asset businesses’ penalties with those of financial institutions. Regulators highlight how the Upbit 2025 hack exposed the gaps in the current statutory compensation framework for users, prompting this legislative approach.
The legislation could impact the operational strategies of major Korean exchanges like Upbit, Bithumb, and Coinone. Potentially, it will also increase capital and insurance requirements due to the heightened financial accountability.
The anticipated financial and operational obligations will drive higher compliance and infrastructure costs. However, these changes are intended to improve user protection and system reliability, mirroring the standards observed by banks.
Industry observers and analysts predict greater investment in security infrastructure across virtual asset platforms. The no-fault regime could emulate traditional financial sectors’ discipline, enhancing risk management and cyber resilience in the crypto space.
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