The price of Bitcoin is displayed on a screen at the Bithumb Lounge in Gangnam District, southern Seoul, Thursday. Yonhap

Trading suspensions and other service disruptions have repeatedly occurred at domestic cryptocurrency exchanges, yet investors have no recourse for compensation due to a lack of a legal framework.

On Friday, Upbit, Korea's largest cryptocurrency exchange, experienced a sudden trading suspension for about two hours. At 6:26 a.m., the exchange announced an emergency server inspection, which led to the suspension of transactions and orders across all markets, including Bitcoin. Trading resumed at 8:37 a.m.

At the time, Upbit informed users only through a notice, stating that "issues with trade execution were identified during system monitoring, prompting an emergency server inspection."

Such unexpected trading suspensions have continued to occur repeatedly.

Following President Yoon Suk Yeol's abrupt declaration of martial law on Dec. 3, Upbit and Bithumb, the second-largest cryptocurrency exchange, experienced service delays of over an hour due to a sudden spike in cryptocurrency trading volume.

According to Rep. Kim Hyun-jung of the main opposition Democratic Party of Korea (DPK), from January 2020 to September of last year, system errors occurred 42 times at Bithumb, 15 times at Upbit, 11 times at Gopax, twice at Coinone, and once at Korbit.

Cryptocurrency exchanges operate around the clock, seven days a week, meaning that access issues and trading suspensions can greatly affect investors. However, there is no legal framework in place to compensate for such damage.

For financial institutions such as banks, securities firms and insurance companies, there are legal provisions for compensation under laws such as the Financial Consumer Protection Act and Electronic Financial Transaction Act.

For financial conflicts, users can apply for resolution through the Financial Supervisory Service, which mediates such matters.

Cryptocurrency exchanges, however, are not classified as financial institutions under current laws and are therefore not subject to the same regulations.

Unlike financial institutions, exchanges are not required to report incidents or accidents immediately to financial authorities.

The Virtual Asset User Protection Act, which came into effect in July last year, focuses mainly on penalizing unfair practices. While the law imposes obligations on exchanges to protect user deposits and virtual assets, there are no provisions for sanctioning system failures that occur at the exchange level.

Against this backdrop, the DPK lawmaker submitted a bill to revise the law, aiming to mandate reporting to financial authorities and public disclosure in the event of significant incidents, such as system failures or hacking, that severely impact operations.

"Under the current law, there is no obligation to report or disclose significant incidents, which often results in users not receiving timely information," Kim said.

"This is why I have proposed the revision. I am also preparing legislation to address compensation and restitution for damages and to enhance system security."