The bidding process for the selection of custodians for seized virtual assets by the National Police Agency is showing significant differences among participating firms. Small custody companies argue that the agency's requirements for full compensation and security systems on par with financial institutions effectively create barriers to entry. Conversely, there are opinions that, given the potential for seized virtual assets to be returned to victims or become state property, only firms with robust security and compensation capabilities should be entrusted with these assets.
According to financial sector sources, the National Police Agency plans to finalize the proposal evaluation for the 'seized virtual asset custody and management project' and select a preferred negotiation partner after conducting technical and price assessments. This initiative aims to manage virtual assets seized by the police through specialized custodians. Bidders include Upbit Custody, Bidex, KDAC, Hectowallet One, and AhnLab Blockchain Company.
The police agency has set conditions that include 100% full compensation, a 24/7 response system, and security and internal control measures equivalent to those in the financial sector. Small custody firms have expressed disappointment, suggesting that these requirements are tailored for large corporations, as few firms can meet these criteria.
However, many in the financial sector argue that strict standards are necessary given the unique nature of seized assets. Cases of voice phishing often involve laundering through virtual assets via fake bank accounts, and incidents of hacking leading to virtual asset theft are becoming more frequent.
Custody of virtual assets is not merely a storage task. It requires a security system that includes private key management, cold wallet storage, access control, and monitoring for unusual transactions to prevent incidents. Particularly, since seized assets may be returned to victims or become state property depending on investigative and judicial processes, the stakes are higher in case of mismanagement. Relying solely on insurance is insufficient; both accident prevention systems and compensation capabilities must be evaluated.
Concerns about the financial conditions of small custody firms are also noted in the industry. The total custody assets of domestic firms plummeted by 98% from 13.8 trillion won in June 2024 to 307.1 billion won in December 2025. Some firms have reported operating losses for five consecutive years and have only about 20 employees, making it challenging to establish a 24/7 response system.
Small custody firms assert that they will meet the full compensation requirement through insurance. However, critics argue that insurance merely compensates for losses after incidents occur and cannot replace a firm's real-time control and accident prevention capabilities. Coverage may vary depending on the type of incident, and factors such as coverage limits and exclusions are also variables.
A financial sector official stated, "For small custody firms, the related insurance premiums are excessively high, making continuous enrollment burdensome, and there are no insurance products that adequately cover the actual types of incidents, compensation scope, and loss amounts. Given the limitations on coverage, exclusions, and deductibles, it is crucial to closely examine the capabilities of the custodians."
* This article has been translated by AI.
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