In a game-changing move for Asia’s largest crypto market, South Korea is rolling out bank-level “no-fault” liability rules for all major exchanges in 2025, forcing platforms like Upbit and Bithumb to compensate users for every hack, outage, or loss — even if the exchange isn’t at fault.
Triggered by the massive $30 million Upbit breach in November 2025 and a string of 20 exchange outages since 2023, the Financial Services Commission (FSC) is now treating crypto platforms exactly like traditional banks. This second-phase Virtual Asset User Protection Act (VAUPA) legislation is set to become law by mid-2026 and will dramatically reshape trading in Korea.
This complete 2025 guide covers everything traders and investors need to know: the new rules, why they exist, how they affect fees and security, and what it means for the future of Korean crypto.
What Are the New Bank-Level Liability Rules?
Under the upcoming amendments, Virtual Asset Service Providers (VASPs) will face strict no-fault liability:
- Exchanges must fully reimburse users for losses from hacks, system failures, or breaches — regardless of blame.
- 80%+ of user funds must be stored in cold wallets.
- Mandatory liability insurance covering at least 5% of hot wallet value (minimum ₩3 billion for large platforms).
- Annual IT security audits and direct FSC oversight.
- Fines up to 3% of annual revenue for non-compliance (vs. current ₩5 billion cap).
This aligns crypto exchanges with Korea’s Electronic Financial Transactions Act — the same law that governs banks.
How These Rules Impact You In 2025–2026
| For Traders | For Exchanges |
| Much stronger hack protection | Higher operating costs (20–30%) |
| Possible fee increases (5–15%) | Mandatory cold storage & insurance |
| Faster compensation after incidents | Risk of huge fines or license loss |
| More trust in Korean platforms | Smaller exchanges may merge or exit |
South Korea Crypto Regulations 2025–2026 Timeline
| Date | Milestone |
| July 2024 | VAUPA Phase 1 (user fund segregation, AML) |
| Nov 2025 | $30M Upbit hack → emergency FSC review |
| Dec 2025 | Draft of Phase 2 “no-fault liability” rules |
| Q1–Q2 2026 | Final legislation & enforcement |
| Mid-2026 | Full bank-level standards in effect |
FAQs – South Korea Crypto Regulations 2025
Will trading fees go up?
Yes — expect 5–15% higher fees as exchanges pass on insurance and compliance costs.
Are foreign exchanges affected?
Only if they serve Korean users. Binance, Bybit, etc., may restrict KRW pairs or require local licensing.
Is crypto lending still banned?
Yes — suspended since July 2025; under review but unlikely to return soon.
Which exchanges are most prepared?
Upbit and Bithumb (the “Big Two”) already hold 80%+ market share and are upgrading cold storage aggressively.
Will this make Korean crypto safer than the U.S. or EU?
Potentially yes — Korea’s rules will be stricter than current U.S. state-level regs and go beyond MiCA’s reserve requirements in some areas.
Final Takeaway
South Korea is building one of the strictest, safest, and most institutionalized crypto markets on the planet. The new bank-level liability rules coming in 2025–2026 mean:
- Fewer successful hacks
- Faster user compensation
- Higher fees and consolidation
- A massive confidence boost for long-term investors
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