South Korean financial institutions seek legal clarity on frozen fraud assets

South Korean financial authorities and lawmakers are expanding measures to combat voice phishing, including extending victim relief to include virtual assets starting in October. Under the amended Telecommunications Fraud Damage Relief Act, virtual asset exchanges will be required to monitor suspicious transactions and implement payment suspensions similar to banks.

However, industry experts and financial institutions are raising concerns regarding a regulatory gap in handling funds held in frozen accounts. Currently, if an exchange or bank preemptively freezes an account due to suspicious activity but no formal victim report is filed, there is no clear legal mechanism to keep the funds secured. Without a legal basis for 'deposit' or long-term storage, institutions may be forced to release the funds back to the account holder to avoid civil complaints.

Proposed legislative changes aim to grant financial companies broader authority to freeze or close accounts suspected of fraud. Meanwhile, discussions are ongoing regarding a ‘no-fault compensation system’ to prioritize victim reimbursement, though concerns remain about the potential transfer of the financial burden to consumers.