South Korea plans preventive crypto withdrawal freezes

The announcement followed a security meeting in Seoul chaired by FSC Vice Chairman Shin Jin-chang. Under the existing Virtual Asset User Protection Act, exchanges may suspend transactions when a hacking incident is established, but the rules have left uncertainty about action based on suspicious transfers or account activity alone. The FSC said early intervention can limit losses; the proposed permission would not give platforms unrestricted power to freeze customer funds.

Regulators also want exchanges to monitor activity around the clock and have staff ready to investigate and respond to suspicious transactions. Platforms unable to provide continuous monitoring would have to process deposits and withdrawals only while security teams are available, notify customers in advance and assign enough staff to handle requests promptly.

South Korea requires virtual asset service providers to keep at least 80% of customer cryptocurrency in cold wallets. The FSC said the industry’s overall cold-storage ratio exceeds 95%, though levels vary among exchanges. It also called on platforms to limit hot-wallet balances to routine needs, consider distributing funds across multiple wallets, and review insurance and financial reserves for compensating customers after hacks.

The proposed measures follow recent incidents. GOPAX suspended trading, deposits and standard withdrawals on November 6 after receiving an email threatening a cyberattack. It said it had detected no actual intrusion or theft and transferred customer assets to cold wallets while investigating. Customers could request withdrawals through support, subject to manual checks. On October 24, Prabang halted operations after abnormal hot-wallet withdrawals; it reported losses of about $70,000 and said it would compensate affected customers from company funds.

The FSC plans further cybersecurity obligations in a proposed Digital Assets Act, including IT security standards and liability for damages comparable to those applying to financial institutions. It also wants exchanges to report suspected breaches and unusual external access promptly. The Financial Security Institute plans to expand threat intelligence, vulnerability assessments and training. Five of South Korea’s 28 registered virtual asset service providers, all won-market exchanges, currently belong to the institute. It aims to update inspection standards by the end of 2026, covering transaction verification, wallet access, blockchain systems and smart contracts.