South Korea's FSC to Shield Crypto Exchanges Freezing Funds on Suspected Hacks

South Korea’s Financial Services Commission announced on Thursday, Nov. 12, that it will issue a no-action letter to protect cryptocurrency exchanges that suspend deposits and withdrawals upon suspecting a security breach ¹. The letter provides regulatory assurance that the watchdog will not pursue enforcement against platforms acting before an intrusion is formally confirmed ¹. While the decision has been finalized, the FSC has not yet specified an issuance date or the precise conditions governing the freezes ¹.

Under South Korea's Virtual Asset User Protection Act, exchanges are barred from freezing user transactions without justifiable cause, generally restricting halts to instances where an exploit has demonstrably taken place ¹. Trading platforms warned that this statutory standard left them exposed to regulatory liability if they blocked asset flows proactively upon noticing irregular transactions ¹. The FSC cited Binance’s late-October hot wallet breach—which resulted in reported losses of $6.3 billion—as evidence that rapid transaction halts are essential to curbing damages ¹. The move also comes after domestic operator Streami, which runs GOPAX, had to implement manual withdrawal workflows after receiving an unconfirmed breach threat ¹. South Korean authorities had previously urged platforms to re-evaluate their custody setups, as detailed in South Korea Pushes Exchanges to Boost Cold Storage Following $6.3B Binance Hack ¹.

Round-the-Clock Monitoring and Custody Rules

During a meeting led by Vice Chairman Shin Jin-chang, the FSC unveiled emergency operational guidelines alongside the planned legal safe harbor ¹. Platforms must maintain continuous, 24-hour incident monitoring ¹. Exchanges lacking the capacity for nonstop oversight are instructed to restrict deposits and withdrawals exclusively to active operating hours and disclose those schedules publicly in advance ¹.

The regulator also directed firms to compress hot wallet balances to operational minimums and maintain sufficient reserves and insurance to satisfy restitution claims ¹. While statutory mandates require South Korean exchanges to store 80% of client assets in cold storage, FSC data indicates actual cold wallet holdings across domestic platforms exceed 95% ¹. Furthermore, the regulator stated it would push more domestic operators to join the Financial Security Institute for threat intelligence and auditing, noting that only five of the nation's 28 registered crypto businesses—all won-denominated exchanges—currently participate ¹.