In the past, S. Korean cryptocurrency exchanges had a choice to refund or not to refund funds lost by users in a hack. Although most of the exchanges which suffered a security breach in the past compensated their users for lost funds, compensation was not engraved in their terms and conditions.
Fortunately, South Korea’s Fair Trade Commission, has compelled S. Korean cryptocurrency exchanges to take responsibility for losses emanating from hacks. According to the country’s antitrust regulator, the fault will squarely be placed on the hacked cryptocurrency exchanges.
Terms of service reviewed
As per a report by Yonhap, a news outlet, Bithumb, a leading crypto exchange in South Korea, is among five exchanges that have already updated their terms of service. The Fair Trade Commission reportedly asked the exchanges to implement the changes in April 2018.
Yonhap continued to note that:
“The cryptocurrency exchanges had said in their terms of service that they will not be held accountable for compensation if there is no willful or gross negligence.”
Early this year, regulators in South Korea audited cryptocurrency exchanges in the country to establish their level of security. Unfortunately, only a third of the exchanges were given a clean bill of health. Those that did not meet the required standards were requested to upgrade their security.
Audit and ToS is a positive step
Notably, the security audit and the change in the terms of service add to another regulatory step towards making the South Korean crypto market safe for investors. Additionally, the regulators may be moving to curb the rise in exchange hacks being witnessed in the country.
Probably, the Fair Trade Commission may have compelled the cryptocurrency exchanges to review their terms of service since the loss of user funds may be an inside job yet pinned on the user
For example, in March, Bithumb lost EOS worth approximately 13 million US dollars at that time’s exchange rates. While this may have been taken as a usual security breach, reports emerged that it’s likely that the lost was orchestrated from the inside. The exchange also confirmed that there were no signs of external intrusion. Although it noted that the lost EOS coins belonged to the exchange, the same could have happened to users.
With no clear lines on how to measure willful or gross negligence, an exchange can easily distance itself with a loss leaving users counting losses. Therefore, having the cryptocurrency exchanges take full responsibility when funds are lost protects the users.
Another South Korean cryptocurrency exchange that has been hacked in the past is Coinrail which lost roughly 30 percent of its cryptos which was estimated at around 37 million US dollars.