What liability rules did Korea propose?

TLDR

South Korea proposed a strict no?fault liability regime for crypto exchanges that would require compensation to users for hacks or system failures, mirroring bank standards under forthcoming legislation.

1. Exchanges must reimburse users for losses regardless of fault, unless users showed gross negligence per officials statements.
2. Penalties could rise to fines of up to 3% of annual revenue, with tougher IT and custody standards being drafted.
3. The move follows Upbits late?November breach (~$30.1 million), which exposed consumer?protection gaps reported at the time.

Deep Dive

1. No?Fault Compensation

The core proposal would require exchanges to compensate users for losses from hacks or system failures without needing to prove exchange negligence, except in cases of gross user negligence. This aligns crypto platforms with bank?style consumer protection standards in Korea as described by officials.

1. The principle mirrors protections in high?risk sectors and traditional finance, closing a gap where crypto exchanges had weaker obligations outlined by regulators.
2. Lawmakers signaled inclusion in upcoming virtual asset legislation, elevating investor protection as a statutory duty per the report above.

2. Fines and Bank?Level Standards

Drafts point to fines up to 3% of annual revenue for major breaches, plus stricter requirements on IT security, custody, audits, and incident recovery plansbringing crypto platforms closer to bank obligations summarized here.

1. The regime would replace fixed caps with revenue?linked penalties, increasing deterrence and accountability noted above.
2. Exchanges may need to submit technology plans and maintain staffing/infrastructure at financial?institution standards as discussed.

3. Catalyst and Timing

The proposal follows a late?November Upbit incident where ~$30.1 million in Solana?based assets were drained in 54 minutes, highlighting gaps in consumer protection and incident response covered contemporaneously.

1. Officials cited repeated IT failures across major Korean exchanges as evidence for tighter rules as above.
2. The liability push is part of broader legislation expected to strengthen investor protection and oversight of virtual asset service providers reported above.

Conclusion

South Koreas proposed liability rules would make crypto exchanges compensate users for hacks and outages and adopt bank?level security standards. This should strengthen consumer protection and trust, though it raises costs and may reshape market structure toward better?capitalized, security?focused platforms.