South Korea Urges Crypto Exchanges To Increase Cold Storage Following Binance Hack

The Financial Services Commission (FSC) held an emergency meeting on November 2 with leading cryptocurrency exchanges and financial regulators to assess the potential consequences of the Binance security breach. Officials examined existing safeguards covering digital asset custody, withdrawal approvals and system access, while identifying additional measures to protect customers against similar attacks.

South Korean regulations already require cryptocurrency exchanges to maintain at least 80% of customer digital assets in cold wallets, which operate without a direct internet connection. However, the FSC has encouraged operators to increase their holdings beyond this minimum threshold as part of a broader effort to strengthen cybersecurity and reduce exposure to unauthorised withdrawals.

Financial Regulator Reviews Exchange Security Measures

The emergency meeting brought together representatives from the FSC, Financial Supervisory Service (FSS), Financial Security Institute and Digital Asset eXchange Alliance (DAXA), alongside major domestic cryptocurrency service providers. Discussions focused on the implications of the Binance attack for South Korea's digital asset industry and whether existing security arrangements could withstand comparable threats.

Regulators examined how exchanges control access to their information technology systems, including the permissions granted to administrators and employees responsible for managing cryptocurrency wallets. Particular attention was given to withdrawal approval processes, digital transaction signatures and the procedures used to authorise transfers from internet-connected hot wallets.

The review followed the October 29 cyberattack on Binance, during which approximately $6.3 billion in digital assets was stolen from the exchange's hot wallet infrastructure. Blockchain intelligence company TRM Labs reported that the attackers transferred most of the affected funds within approximately 20 minutes, demonstrating how quickly compromised systems can facilitate large-scale cryptocurrency thefts.

Although Binance has stated that most customer assets are held in cold storage, the incident has renewed concerns about the risks associated with funds maintained in online wallets for everyday trading and withdrawals. Unlike cold wallets, which are isolated from the internet, hot wallets must remain connected to facilitate transactions, potentially increasing their exposure to cyberattacks.

South Korean Exchanges Already Hold Majority Of Assets Offline

South Korea's Virtual Asset User Protection Act requires cryptocurrency exchanges to store at least 80% of customer digital assets in cold wallets, establishing a minimum level of offline custody designed to reduce the consequences of security breaches. However, the proportion of assets maintained in cold storage varies considerably between the country's leading trading platforms.

According to Financial Supervisory Service figures covering the end of September, Upbit maintained approximately 99.17% of customer cryptocurrency holdings in cold wallets, substantially exceeding the regulatory requirement. Bithumb reported a cold storage ratio of 94.76%, while Coinone held approximately 85% of customer digital assets offline.

Other exchanges operated closer to the mandatory threshold, with Digital X, formerly known as Korbit, reporting a ratio of 82.79% and GOPAX maintaining approximately 80.54%. Although both companies remained compliant with existing requirements, their lower percentages illustrate the differences in custody arrangements across the domestic cryptocurrency industry.

The FSC has not announced a new mandatory cold storage percentage, instead urging operators to strengthen their existing arrangements voluntarily. Increasing offline holdings could reduce the amount of cryptocurrency exposed to internet-based attacks, although exchanges must also maintain sufficient accessible liquidity to process legitimate customer withdrawals.

Exchanges Asked To Strengthen Monitoring And Emergency Reserves

Beyond increasing cold storage, South Korean regulators have instructed cryptocurrency service providers to improve their monitoring of deposits, withdrawals and unusual account activity. Exchanges were encouraged to maintain continuous surveillance of transactions, establish procedures for detecting suspicious access attempts and ensure that potential security incidents are reported promptly to relevant authorities.

The FSC also called for additional personnel dedicated to cybersecurity and incident response, allowing operators to react more effectively when suspicious transactions or unauthorised system access are detected. Coordination between exchanges, regulators and industry organisations was identified as another important measure for preventing individual security incidents from escalating into wider market disruptions.

Financial authorities have additionally encouraged operators to increase their financial reserves and implement security improvements that can be introduced without significant delays. These measures are intended to strengthen exchanges' ability to respond to potential losses while maintaining customer protection and operational continuity.

South Korean law already requires cryptocurrency businesses to maintain safeguards against financial losses arising from hacking and other operational incidents, including appropriate insurance coverage or reserve arrangements. The latest recommendations build on those obligations without immediately introducing new mandatory requirements.

The FSC has indicated that it will continue working with regulatory agencies and industry representatives to assess vulnerabilities and strengthen the country's response to cryptocurrency-related cybercrime. Further discussions could also influence future regulatory requirements surrounding digital asset custody and operational security.

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Bank Of Korea Conducts Separate Cryptocurrency Risk Review

The FSC's intervention comes as the Bank of Korea conducts a separate assessment of cryptocurrency-related risks across 31 financial institutions, including 18 banks and 13 securities companies. The central bank launched its survey on October 23, before the Binance breach, to examine how financial institutions are becoming involved in digital assets and whether existing safeguards are sufficient.

The questionnaire asks institutions to assess potential losses arising from cryptocurrency exchange shutdowns, prolonged market downturns and financial difficulties affecting other businesses. It also examines investments in digital asset companies, planned cryptocurrency services and the resources allocated to managing associated risks.

Together, the two reviews reflect growing regulatory attention towards the relationship between cryptocurrency markets and South Korea's established financial system. While the FSC is concentrating on exchange security and customer asset protection, the Bank of Korea is examining how developments in digital asset markets could affect traditional financial institutions.

The latest recommendations are expected to place greater emphasis on offline custody, transaction monitoring and incident preparedness as South Korean exchanges review their security arrangements. Although existing regulations already provide a framework for protecting customer assets, the scale of the Binance breach has prompted authorities to encourage stronger safeguards before comparable incidents affect domestic platforms.