South Korea tightens crypto exchange oversight, enabling suspensions during major incidents.
The Financial Supervisory Service (FSS) has urged South Korea’s National Assembly to create a legal basis that would allow regulators to suspend the operations of virtual asset exchanges in cases of major incidents, such as the “ghost coin” problem that surfaced during a large-scale Bitcoin payout error at Bithumb. The recommendations were presented as part of a broader push to enact a second-phase framework for virtual assets to strengthen oversight and prevent financial accidents.
The FSS argues that the law should explicitly permit suspension when a crypto exchange operator fails to meet a “real holdings” obligation — that is, it must hold in custody the same type and amount of digital assets entrusted by users. It says this requirement should be a clear grounds for shutting down operations in severe cases.
It also calls for upgrading the IT governance framework to a level comparable with the Electronic Financial Transactions Act, including regular IT disaster recovery plans and mandatory balance verification between assets held and those recorded on ledgers. The aim is to codify ongoing checks to ensure holdings match ledgers.
The agency further recommends codifying internal-control requirements, such as multi-signature approval processes and strict system-access controls, to ensure exchanges comply with internal-control standards.
The FSS suggested that repeated IT outages caused by similar root causes should not automatically justify blocking user withdrawals. It argued that overuse of withdrawal blocks could excessively infringe users’ rights, and proposed restricting such discretionary actions by exchanges.
The watchdog also asked that the second-phase law grant bank-level inspection and sanction powers to crypto exchanges, enabling swift and stringent enforcement when violations are found.
In addition, the FSS proposed including its agency as a member of a policy advisory body on stablecoins and related monetary policy impacts, and introduced a rule to limit the appointment of executives implicated in unfair trading practices to up to five years.
For U.S. readers, these moves signal Korea’s intent to tighten custody, governance, and risk-management standards for digital assets. Korea’s approach could influence how cross-border trading and cooperation with U.S.-based exchanges are conducted, affect stablecoin policy, and shape the global fintech regulatory landscape in Asia. The proposals highlight potential ripple effects on international supply chains for crypto assets, cybersecurity norms, and consumer protection in digital finance.