South Korea To Allow Crypto Withdrawal Freezes Over Hacks

South Korea has announced plans to allow cryptocurrency exchanges to temporarily block deposits and withdrawals when they suspect a hacking attempt, according to CryptoNews. The regulatory shift permits platforms to take preventive action before a security breach is officially confirmed.

In a Thursday announcement, the Financial Services Commission (FSC) stated it would issue a no-action letter permitting exchanges to suspend transactions under specific security conditions. The decision follows a security meeting chaired by FSC Vice Chairman Shin Jin-chang in Seoul following recent incidents, including GOPAX's precautionary suspension after receiving a cyberattack threat and a hot-wallet breach at Prabang involving losses of approximately $70,000.

Stricter Security and Monitoring Requirements

Under South Korea's existing Virtual Asset User Protection Act, exchanges could not restrict customer transactions without legitimate grounds, leaving uncertainty over preventive freezes. The new no-action letter provides regulatory assurance for preventive suspensions that meet specified criteria.

Beyond withdrawal rules, regulators are pushing virtual asset service providers to strengthen monitoring systems. The FSC called for continuous 24-hour monitoring, requiring responsible personnel to investigate suspicious activity. Platforms unable to provide round-the-clock supervision must restrict transaction processing to hours when security teams are available, while informing customers in advance.

Cold Storage and Future Legislation

Regulators also instructed operators to keep more customer assets in offline storage. South Korea currently requires at least 80% of customer cryptocurrency to be held in cold storage, though the FSC notes the industry average already exceeds 95%.

The FSC intends to introduce additional cybersecurity obligations through its proposed Digital Assets Act, which will require businesses to meet IT security standards comparable to traditional financial institutions. The Financial Security Institute will expand support and update inspection standards by the end of 2026.

Key facts

• The FSC will issue a no-action letter allowing exchanges to freeze withdrawals when hacking is suspected.
• GOPAX suspended services on November 6 following an email threat, and Prabang lost $70,000 in an October 24 hot-wallet breach.
• South Korea currently mandates that exchanges hold at least 80% of customer cryptocurrency in cold storage.
• The Financial Security Institute plans to update security inspection standards by the end of 2026.