South Korea's Financial Supervisory Service has begun sanction procedures against Dunamu, the operator of crypto exchange Upbit, over a hack the platform suffered in November. The FSS recently sent Dunamu an inspection report covering the incident, according to local broadcaster SBS, citing financial authorities and industry sources. The step comes about seven months after the regulator opened its inspection of the exchange. The hack resulted in the theft of 44.5 billion won (about $30 million) in Solana-based assets on Nov. 27. The FSS has been examining whether the incident involved violations of the Virtual Asset User Protection Act, which focuses on user protection and unfair trading but contains no direct provisions for sanctioning exchanges over hacks or IT failures.
Upbit Hack Details and Timeline
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. The funds were drained to an external wallet over roughly 54 minutes starting at 4:42 a.m. local time, per SBS. South Korean authorities have suspected North Korea's Lazarus Group of being behind the theft, though neither Upbit nor regulators have publicly confirmed attribution.
Dunamu Covers Customer Losses and Freezes Stolen Funds
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.
FSS Examines Virtual Asset User Protection Act Violations
The FSS has 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. 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.
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.
Disclosure Timing Controversy and Naver Merger Delay
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.
Sanction Process Steps and Committee Deliberations
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. The sanction process will play out while the Naver merger deal awaits completion.
The regulator will pause inspections for three weeks starting Monday and resume in mid-August, according to the report.
Bithumb Inspection and Industry-Wide Oversight
The FSS has 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.
FAQ
What did the FSS do regarding Dunamu after the Upbit hack?
The Financial Supervisory Service recently sent Dunamu an inspection report covering the November hack incident and has begun sanction procedures against the company. The step comes about seven months after the regulator opened its inspection of the exchange.
How much was stolen in the Upbit hack and how much has been recovered?
Upbit was hacked for 44.5 billion won (about $30 million) in Solana-based assets on Nov. 27. Dunamu covered 38.6 billion won ($26 million) in affected customer assets using Upbit's own reserves and has frozen 2.6 billion won ($1.7 million) of the stolen funds.
What are the next steps in the FSS sanction process for Dunamu?
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.
