Binance hacked… Financial Services Commission reviews measures to limit rapid withdrawals from virtual asset exchanges (comprehensive)

(Seoul = Yonhap News) Reporter Kang Soo-ryeon and Dong-hyeon Yoo = The Financial Services Commission urgently convened domestic virtual asset exchanges in connection with the 'Binance hacking incident' and requested them to accumulate additional reserves.

The Financial Services Commission also plans to consider easing related regulations so that domestic exchanges can quickly restrict user withdrawals in emergency situations such as hacking of other exchanges.

The Financial Services Commission discussed this at an emergency inspection meeting with domestic virtual asset business operators held on the 2nd, chaired by Digital Finance Policy Director Yoo Young-jun.

This meeting was prepared to examine the impact on the domestic virtual asset market and the virtual asset business response system related to the Binance incident, which caused hacking damage worth approximately $6.3 billion (KRW 8 trillion).

As the current Virtual Asset User Protection Act prohibits arbitrary blocking of deposits and withdrawals, the industry proposed to the Financial Services Commission to ease related regulations so that withdrawals can be quickly restricted even in the event of a hacking incident at another exchange.

Current law allows blocking deposits and withdrawals if there is a ‘justifiable reason prescribed by Presidential Decree’. If a hacking incident occurs at the company, withdrawal restrictions may be recognized as a justifiable reason to protect users, but the industry explains that it is unclear whether this applies to incidents at other exchanges as well.

The industry is concerned that in situations like the Binance hacking incident, withdrawal restrictions on domestic exchanges could lead to violations of the law.

Specifically, methods such as adding cases where there is a problem with the continuous surveillance system or when a specific event occurs were discussed.

There was also a suggestion that the authorities clarify the scope of application of regulations through authoritative interpretation or issuance of no-action opinions.

It is reported that the authorities also sympathize with the industry's concerns and will look into related matters.

Authorities also requested additional security strengthening measures to prevent hacking incidents.

In this hacking incident, assets were withdrawn from a 'hot wallet' that stores digital assets while connected online, raising the possibility of access to the internal system through an employee's work laptop and delivery through unauthorized access to the transaction approval/signature system.

At the meeting, the Financial Services Commission focused on inspecting access control to the computer system of domestic virtual asset business operators, the approval and signature system for wallet shipments such as hot wallets, and the status of administrator authority management.

In particular, it was ordered to increase the proportion of cold wallets that are not connected to the Internet to prevent similar breaches.

According to the current Virtual Asset User Protection Act, virtual asset operators must store more than 80% of customer deposited assets in cold wallets, but the proportion varies by company.

In addition, a rapid response system was also ordered, including constant monitoring of arrivals and departures, securing additional response personnel, and reporting and sharing of abnormal access attempts.

In addition, he requested measures to protect users, such as accumulating additional reserves.

It is reported that the Financial Services Commission has ordered the industry to report the status of deposits and withdrawals by exchange related to the Binance hacking incident through Docsa.

The Financial Services Commission said, "We plan to work closely with related organizations and the industry to prevent additional breaches such as hacking and continue to strengthen our response system to prevent the spread of damage."