South Korea Crypto Exchanges May Freeze Withdrawals on Hack Fears

TLDR:

• Crypto exchanges in South Korea could suspend deposits and withdrawals when hacking is suspected under a planned FSC measure.
• The FSC plans a no-action letter for preventive suspensions but has not detailed the conditions, time limit or issue date.
• GOPAX halted trading and standard withdrawals on Nov. 6 after a hacking threat, though it reported no confirmed loss of assets.
• The regulator called for continuous monitoring, more offline storage and enough insurance and reserves to compensate customers.

South Korea’s crypto exchanges could gain permission to suspend deposits and withdrawals when they suspect a hack. The Financial Services Commission (FSC) announced the plan on Nov. 12 after a meeting on digital asset security in Seoul. It intends to issue a no-action letter covering preventive suspensions under certain conditions.

The change would give platforms room to act before confirming a breach. The regulator called for continuous monitoring and stronger protection for customer assets. The announcement follows a recent hacking threat against GOPAX and a separate incident at Prabang. The FSC has not said when it will issue the letter.

Why Crypto Exchanges May Suspend Customer Withdrawals

The Virtual Asset User Protection Act prohibits platforms from blocking deposits and withdrawals without legitimate grounds. A confirmed hacking incident can justify a suspension, according to the FSC.

Crypto exchanges told regulators they were unsure whether they could act before confirming a hack. Suspicious transactions can raise concerns before an attack is established.

A no-action letter gives regulatory assurance against enforcement for specified conduct under stated conditions. The FSC said it would use one to address the uncertainty around preventive suspensions.

The agency did not detail the qualifying conditions, an issue date, or a time limit for withdrawal freezes. Its announcement addressed deposits and withdrawals but did not say the planned letter would cover trading suspensions.

A halt could prevent further unauthorized transfers while a platform investigates suspicious activity. It could also leave customers unable to withdraw assets during a volatile market. The criteria for restarting withdrawals will matter to users who need access to their funds.

The FSC separately told crypto exchanges to report breaches or suspicious external access attempts promptly to financial authorities. It also called for staff to monitor unusual transactions and respond around the clock.

Platforms unable to maintain continuous monitoring should process deposits and withdrawals only when their response systems operate normally. They should notify customers of those hours in advance and have enough staff to handle requests promptly.

GOPAX Threat Puts Exchange Security Measures in Focus

GOPAX suspended trading, deposits and regular withdrawals on Nov. 6 after receiving an email claiming the exchange had been hacked. The platform said it had not verified the threat and reported no loss of customer assets at the time.

GOPAX began moving most assets held in online hot wallets into offline cold wallets. Customers could still request withdrawals through support channels, subject to manual verification.

Prabang also suspended services after detecting abnormal withdrawals from its hot wallet on Oct. 24. The exchange reported losses of approximately $70,000 and said it would compensate affected customers with company funds.

The incidents followed a broader review of financial firms. In October, 130 of 555 companies reported areas needing improvement in their cybersecurity controls, according to the FSC. A separate investigation identified incidents at 16 firms, including GOPAX operator Streami and Prabang.

The regulator wants crypto exchanges to keep more customer assets in cold wallets, which are not connected to the internet. South Korean rules already require operators to hold at least 80% of customer crypto offline. The FSC said the overall share across operators was at least 95%.

It also urged platforms to hold only the amounts needed for trading in hot wallets. Exchanges should consider spreading those assets across multiple wallets. They should maintain enough insurance and reserves to compensate customers after an attack.

The FSC plans to bring more crypto exchanges and other providers into the Financial Security Institute. The institute provides threat information and security checks for members. Only five of South Korea’s 28 virtual asset businesses had joined, the regulator said. Its updated inspection standards will cover wallet access controls, transaction checks and smart contracts.

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