South Korea's National Police Agency (KNPA) has introduced comprehensive new guidelines to standardize the handling, storage, and management of seized cryptocurrencies. This regulatory overhaul comes in direct response to a series of high-profile security lapses and asset losses that exposed critical weaknesses in the custody practices of public institutions.
The new directive mandates standardized procedures for managing wallet addresses, private keys, and software wallets. A key component addresses the unique challenge of privacy-focused assets, specifying protocols for their secure storage as they cannot be easily held in standard hardware wallets. "In the past, seized assets were stored in warehouses. Now we must manage wallet addresses and private keys," a police spokesperson stated, highlighting the shift in asset management philosophy.
The push for reform was catalyzed by several damaging incidents. In one case, Bitcoin seized in 2021 was lost after authorities relied on a third-party custodian without maintaining control of the private keys, a failure only uncovered during an internal probe. In a separate, more costly incident, the Gwangju District Prosecutors' Office lost approximately 70 billion won (about $48 million) in seized Bitcoin due to a phishing attack that compromised login credentials and enabled unauthorized transfers from a state-controlled wallet.
These events prompted a broader governmental response. Last month, South Korea's finance minister announced that the government, alongside the Financial Services Commission and the Financial Supervisory Service, would conduct a full inspection of digital assets held by public institutions and review enforcement management processes.
