South Korea’s FSC Reviews Local Crypto Exchange Security After Binance Hack, Weighs Broader Withdrawal Limits

South Korea’s Financial Services Commission is reviewing the security systems of domestic cryptocurrency exchanges and considering changes to withdrawal-limit rules in the wake of the Binance hack.

Financial authorities held an emergency meeting on November 2 with local virtual asset service providers, chaired by Yoo Young-jun, director-general for digital finance policy at the FSC, officials said on November 3. The meeting examined the potential impact on the domestic market from the Binance hack, which caused about $6.3 billion in losses, and checked each exchange’s security response.

At the meeting, industry participants called for broader conditions under which crypto withdrawals can be restricted. The current Virtual Asset User Protection Act allows exchanges to block deposits and withdrawals only when there is a legitimate reason set out in a presidential decree. Participants said it is unclear whether exchanges may restrict withdrawals to protect users when a hack occurs at another exchange.

The industry asked for a legal basis that would let exchanges quickly halt withdrawals in emergencies, including hacks at external exchanges or failures in abnormal-transaction monitoring systems. It also proposed adding relevant grounds to the enforcement decree or clarifying regulatory standards through an authoritative interpretation by financial authorities and no-action letters. The FSC said it will review the proposals.

The FSC also inspected the security of exchanges’ internal systems. It focused on withdrawal approvals and electronic-signature procedures for hot wallets, or crypto wallets connected to the internet, as well as access controls for computer networks and administrator privilege settings. In the Binance case, concerns have been raised that weaknesses in internal-system access routes and transaction-approval procedures may have been exploited in the hack.

The FSC also called for a greater share of assets to be held in cold wallets to minimize hacking losses. Cold wallets store crypto assets offline, separate from the internet. Under current law, domestic virtual asset service providers must keep at least 80% of customer assets in cold wallets, though actual storage ratios vary by exchange.

The FSC said it plans to work with related agencies and the industry to strengthen its response framework to prevent additional hacking incidents and contain any spread of damage. It also said it will review the industry’s requests on withdrawal restrictions with user asset protection and trading stability in mind.