South Korean Regulator Will Shield Exchanges That Freeze Funds at the First Sign of a Hack

South Korea's Financial Services Commission (FSC), the country's financial regulator, said on Thursday, Nov. 12, that it has decided to issue a no-action letter so crypto exchanges can block deposits and withdrawals when they suspect a hack. A no-action letter is a regulator's written assurance that it won't take enforcement action over a specific practice.

The letter hasn't been issued yet. The FSC's release, published in Korean, gives no issue date and says the freezes would be allowed under certain conditions that it didn't spell out.

Under the Virtual Asset User Protection Act, exchanges may not block deposits and withdrawals without a justifiable reason, and a block is permitted only once a hack has clearly occurred. Exchanges had said it was unclear whether they could freeze funds earlier, such as on an abnormal transaction, according to the release. The FSC pointed to the Binance hack as a case showing that blocking fast is decisive in limiting harm to users. Binance put its losses from hot wallets, which exchanges keep online, at $6.3 billion in late October.

The GOPAX freeze

The release doesn't mention GOPAX, the Korean exchange that halted trading and crypto deposits on Friday, Nov. 6, and moved withdrawals to emailed requests approved by hand. Yonhap reported that GOPAX acted after an email from a group saying it had breached the exchange. GOPAX operator Streami was among the exchanges at Thursday's meeting. By our read, GOPAX froze on a threat it said it hadn't confirmed: the suspected-hack stage the industry told the FSC the law leaves unclear, which the planned letter is meant to cover.