Will domestic virtual asset exchanges’ liability for compensation be strengthened for the Binance hack?

As Binance, an overseas virtual asset exchange, promises to preserve all assets stolen by hacking, attention is also focused on measures to strengthen the responsibility of domestic exchanges.

While digital asset-related bills include hacking compensation provisions, financial authorities are also reviewing 'no-fault compensation liability', so attention is being paid to whether this will lead to actual legislation.

According to the virtual asset industry on the 4th, among the digital asset-related bills currently pending in the National Assembly's Political Affairs Committee, the bill proposed by Representatives Lee Kang-il and Park Sang-hyuk of the Democratic Party of Korea, respectively, includes a clause holding virtual asset business operators liable for damages in the event of hacking.

In particular, Rep. Park's bill places the burden of proof of damages on the business operator. Unlike general damages claims where the user must directly prove the business operator's intention or negligence, the responsibility of the business has been strengthened.

The bill from Reps. Min Byeong-deok, Kim Jae-seop, and Choi Bo-yoon did not specify liability for hacking compensation, but required business operators to provide new users with ways to compensate for damages in case of emergency.

Financial authorities are also reviewing provisions that would hold virtual asset operators liable for no-fault damages in the event of hacking or computer accidents.

In principle, if a loss occurs to a user, compensation is required even if there is no intention or negligence on the part of the business operator.

As the need for introduction was also discussed at the Virtual Asset Committee in March of this year, there is growing interest in the possibility that related provisions will be included in the basic digital asset bill being prepared by the government.

An official from the Political Affairs Committee said, "The Binance hack is a cause for alarm, but there is a trend to strengthen responsibility overall, such as imposing fines in the Electronic Financial Transactions Act, etc." He added, "Even if it is not included in the government bill, as some lawmakers' bills contain clauses on liability for compensation, it is expected to be reflected in the bill merger review process."

The existing Virtual Asset User Protection Act requires business operators to sign up for insurance and deductions or accumulate reserves in preparation for accidents such as hacking, but does not directly stipulate separate liability for damages for hacking damage.

Therefore, under the current law, in the event of an actual accident, the establishment and scope of the business operator's liability for compensation must be individually examined in accordance with civil law or service contracts.

Gyu-cheol Lee, a lawyer at Barun Law Firm, said, “If compensation regulations are established in the future and the burden of proof is imposed on business operators, the burden on users will be reduced because business operators will have to prove that there was no intention or negligence on their part in order to be exempt.”