South Korea’s Financial Security Institute (FSI) has announced a proactive three-part plan to build security infrastructure around smart contracts before large-scale exploits occur. The initiative comes as the country advances Security Token Offering legislation and Phase 2 virtual asset regulations, aiming to create a technical-security layer undergirding the entire digital asset framework.
Part One: Automated Vulnerability Detection Tools. The FSI is developing a dedicated smart contract verification tool tailored to Korea’s regulatory environment. It will automatically detect vulnerabilities in tokenized securities and stablecoins, focusing on reentrancy attacks (like the infamous $60 million DAO exploit), access permission errors, and collateral verification omissions. The tool will be continuously updated with evolving regulatory inspection standards and will incorporate AI-based code inference to strengthen detection against the latest threats.
Part Two: A Verification Framework for Financial Institutions. Beyond the tool, the FSI is establishing a full security verification system covering the entire lifecycle of smart contracts—development, deployment, and operation. A formal checklist and a published “Smart Contract Security Guide” will set the standards financial institutions must meet before going live. The FSI will also run pilot inspections and provide hands-on support, particularly critical for smaller institutions lacking in-house blockchain security expertise.
Part Three: Building Human Expertise. The plan explicitly focuses on people, not just tools. The FSI will organize seminars and consultative bodies for digital asset and security managers at financial companies, alongside a collaborative expert network across the financial sector and private security firms. This network will share real-time attack techniques and case studies to foster a security-conscious workforce.
The announcements follow a series of embarrassing security failures in South Korea. In February 2026, the National Tax Service accidentally published an unredacted wallet recovery phrase, leading to a $4.8 million theft within hours. Separately, Seoul’s Gangnam Police Station lost 22 Bitcoins (over $1.4 million) from a cold wallet, and the Gwangju District Prosecutors’ Office fell victim to a phishing attack that drained $21 million. These incidents underscored the urgent need for robust security infrastructure.
On a parallel track, the Financial Services Commission (FSC) mandated new exchange controls after Bithumb’s February payout error, where an employee mistakenly sent Bitcoin worth roughly $40 billion to customers instead of Korean won. Exchanges must now reconcile internal ledgers with actual crypto holdings every five minutes, halt trading automatically upon detecting mismatches, appoint a Risk Management Officer, and undergo inspections every six months.
Days before the FSI’s announcement, the National Tax Service launched a $2.2 million AI transaction-tracking system at the Seoul Regional Tax Office. It pulls data from exchanges like Upbit and Bithumb and combines it with on-chain blockchain data to flag suspicious patterns such as money laundering, unreported gifts, and offshore tax evasion. The system also monitors non-custodial wallets, closing the loop on all routes South Korean traders use. The Ministry of Economy and Finance confirmed that a 22% tax on crypto gains exceeding 2.5 million won (roughly $1,800) will take effect in January next year, with final guidelines ready by end-2026. Meanwhile, total crypto assets held by over 10 million investors on major Korean exchanges dropped 37.5% to approximately $51.02 billion.
