Bank of Korea probes financial firms’ exposure to crypto risks

The Bank of Korea has initiated an inquiry into financial institutions to evaluate their exposure to crypto risks. On October 23, the central bank launched a survey targeting 18 banks and 13 brokerages, marking its first reported assessment of financial firms' involvement in the virtual asset market.

The survey covers institutions' crypto-related personnel and financial allocations, business operations, and their reasons for engaging with the market. It also seeks information on investment amounts in both domestic and international cryptocurrency firms.

The survey poses scenarios such as the impact on financial firms if a major South Korean crypto exchange were to halt operations due to a significant hack or similar event. Other inquiries address the repercussions of a substantial decline in cryptocurrency prices followed by a prolonged trading downturn.

The potential consequences if another financial institution incurred significant losses from a crypto-related incident are also being examined. The survey's launch preceded the recent $6.3 billion Binance hack, an incident that underscores the types of crypto risks the central bank is evaluating. US authorities have attributed this attack to North Korean hackers. Responses to the survey are expected by Wednesday.

This review occurs as South Korean financial entities continue to explore stablecoin services. KB Financial Group concluded a won-denominated stablecoin pilot in May, while Kakao Pay and KakaoBank collaborated with Fireblocks in September to investigate digital asset infrastructure. The Bank of Korea has advocated for bank-issued stablecoins, though progress on the proposed Digital Asset Basic Act has been complicated by disagreements over which institutions should be authorized to issue stablecoins.

A Bank of Korea official indicated that financial institutions are proceeding with their preparations despite the slower-than-anticipated legislative progress in virtual assets. Regulators have also intensified their focus on cybersecurity. In October, the Financial Services Commission proposed enhanced security requirements after identifying vulnerabilities at 130 out of 555 financial companies. These proposals include more frequent vulnerability assessments and increased executive accountability, following security incidents involving 16 companies, including crypto exchanges.