Quick Take
- The Financial Supervisory Service sent an inspection report to Dunamu over the 44.5 billion won ($30 million) hack of Upbit last November, the first formal step in the regulators sanction process, according to local broadcaster SBS.
- The severity of any sanctions remains unclear because South Koreas current crypto law contains no direct sanction provisions for hacking or IT failures.
South Korea's Financial Supervisory Service has begun sanction procedures against Dunamu, the operator of crypto exchange Upbit, over the roughly $30 million hack the platform suffered last November, local broadcaster SBS reported Sunday.
The FSS recently sent Dunamu an inspection report covering the incident, according to the report, which cited financial authorities and industry sources. The step comes about seven months after the regulator opened its inspection of the exchange.
Upbit, South Korea's largest crypto exchange by trading volume, was hacked for 44.5 billion won (about $30 million) in Solana-based assets on Nov. 27 last year. The funds were drained to an external wallet over roughly 54 minutes starting at 4:42 a.m. local time, per SBS.
Dunamu covered the 38.6 billion won ($26 million) in affected customer assets using Upbit's own reserves. The company has frozen 2.6 billion won ($1.7 million) of the stolen funds and is working to recover them, SBS reported, up from the 2.3 billion won Upbit said it had frozen in the days after the breach.
The exchange drew criticism at the time for its disclosure timing, as it announced the hack only after a merger event with Naver Financial held the same day had concluded, according to SBS. Dunamu's stock-swap merger with the Naver fintech arm is still pending and was pushed back to Dec. 31 earlier this month, meaning the sanction process will play out while the deal awaits completion.
The FSS has reportedly been examining whether the incident involved violations of the Virtual Asset User Protection Act. The law focuses on user protection and unfair trading, however, and contains no direct provisions for sanctioning exchanges over hacks or IT failures, leaving the scope of any sanctions uncertain.
Authorities plan to address that gap in the Digital Asset Basic Act, the second phase of South Korea's crypto legislation, by adding rules on sanctions and compensation for hacking and IT incidents, per SBS.
Lee Chan-jin, governor of the Financial Supervisory Service, said at a Dec. 1 press conference that sanctions under the Virtual Asset User Protection Act have limits, but that the hack was not something the regulator could simply pass over.
The FSS plans to notify Dunamu of its proposed sanction level after a clarification process. Final sanctions or penalties will be decided through deliberations by the regulator's Sanctions Review Committee, the Securities and Futures Commission and the Financial Services Commission.
South Korean authorities have suspected North Korea's Lazarus Group of being behind the theft, The Block previously reported, though neither Upbit nor regulators have publicly confirmed attribution.
The FSS has also concluded a separate inspection of rival exchange Bithumb over an incident involving misallocated bitcoin and plans to begin sanction procedures there once legal reviews wrap up, per SBS. That probe had examined Bithumb's internal controls and risk management.
The regulator will pause inspections for three weeks starting Monday and resume in mid-August, according to the report.
