- The five exchanges will take liability for customer losses
- The South Korean crypto sector has experienced heightened cyber-attacks
- The new regulations will put pressure on crypto exchanges
Bithumb and four other South Korean cryptocurrency exchanges have changed their liability documentation to meet the demands of regulators. The Fair Trade Commission (FTC) originally asked Bithumb and four other platforms to increase liability in 2018.
According to a report in a local English Language newspaper The Korea Herald on June 17, 2019, the cryptocurrency exchanges will have the onus of paying out for cyber-attack problems or system malfunctions even if no willful or gross negligence occurred on their part.
Liable For Their Customers’ Losses
The FTC had in April 2018 given the leading South Korean cryptocurrency exchanges a list of recommendations, part of which requested them to include more liability clauses in their terms and conditions. As a result of FTC’s recommendations, the five exchanges are now obliged to undertake liability for any losses incurred by their customers as a result of fraudulent activities. The point of turning for the new regulation is the fact that the exchanges will still be liable for their customers’ losses even where they are not knowingly involved in fraudulent actions.
Previously, cryptocurrency exchanges were only required to reimburse their customers if there was proof that it’s their systems that were at fault for any losses. The said changes are pertinent, considering that the domestic cryptocurrency exchange sector has experienced serious hacking attacks with users losing their funds especially during the last one year with Bithumb being a victim. In June last year, Bithumb lost 35 billion won ($31.5 million) worth of cryptocurrencies in a cyber-attack.
Heightened Concerns over Incidents
The need for enhanced liability and customer protection comes hot on the heels of heightened concerns over crypto hacking incidents that are allegedly initiated by North Korea. A case in mind is the December 2017 hacking of Youbit cryptocurrency exchange where the platform lost up to 17 percent of its assets via a North-Korean cyber-attack, eventually leading to the bankruptcy of the exchange.
Another South Korean cryptocurrency exchange, UpBit, also became a victim of a North-Korean started phishing scam. During the attack, users of the exchange received emails that contained a file with malicious code. While no Upbit customers experienced any direct losses as a result of the attack, several UpBit customers actually downloaded the malware file.
Increase the Trust of Customers
The booming South Korean cryptocurrency sector was seriously affected by the bearish cryptocurrency market witnessed during the entirety of 2018 during which several cryptocurrency exchanges shuttered their shops. The new regulatory regime recommended by the FTC is meant to increase the trust of customers in cryptocurrency exchanges. However, the new terms and conditions are likely to put increased pressure on the exchanges.