South Korea tightens crypto withdrawal delays after scam

South Korea’s financial regulators narrowed the circumstances in which licensed cryptocurrency exchanges may delay customer withdrawals after investors lost assets in a scam earlier this week. The guidance requires exchanges to process withdrawals promptly except in narrowly defined, documented cases.

Under the clarified rules, virtual asset service providers may postpone withdrawals only when a clear legal or technical barrier exists, such as an ongoing criminal investigation, an enforceable court order, or a verified major system failure. Exchanges must notify affected customers and relevant authorities immediately when a delay is imposed and explain the reason and expected duration.

The agencies require exchanges to keep written procedures for handling withdrawal requests, to log the reasons and length of any hold, and to report suspicious activity to law enforcement and financial intelligence units without delay. Regulators will increase on-site inspections and can apply sanctions for noncompliance, including fines, business restrictions or referrals for criminal investigation.

Regulators moved after reports that delayed withdrawal windows were exploited in a fraud this week, preventing some customers from moving funds or closing positions while attackers withdrew assets or moved them off-platform. The clarified guidance aims to limit the opportunity for criminals to use withdrawal holds to hide or remove stolen assets.

Exchanges are directed to improve customer communications and dispute-resolution mechanisms so users know the specific reason for any pause and the expected timeline for resolution. Platforms must strengthen internal controls to segregate client assets from operational funds and enhance monitoring for fraud, coordinated withdrawals or other signs of abuse.

The guidance specifies that routine maintenance, minor system slowdowns or temporary liquidity differences do not justify extended blocking of customer withdrawals. Any technical suspension must be proportionate, documented in a public customer notice and lifted as soon as the underlying issue is fixed. Where criminal activity is suspected, exchanges are expected to cooperate promptly with prosecutors and investigators while limiting harm to innocent customers.

Analysts say smaller platforms may need to invest in faster reconciliation systems and larger compliance teams to meet the requirements, while major exchanges are reviewing procedures to ensure timely reporting and notification. The regulators noted the clarified rules do not prevent legitimate law-enforcement freezes during inquiries and that enforcement actions and additional details will follow as agencies assess exchange compliance in the coming weeks.

Recently, South Korea introduced a bill that would bring stablecoins, tokenized RWAs under finance law, imposing registration, AML/KYC, disclosure and reserve rules.