South Korea Moves to Standardize Seized Crypto Handling Amid Custody Risks

South Korea is tightening its grip on digital asset enforcement as the Korean National Police Agency (KNPA) rolls out new draft guidelines to standardize how seized cryptocurrencies are stored, managed, and secured.

According to a report by local outlet Asiae, the KNPA’s directive outlines compliance protocols across every stage of crypto seizure, including the handling of software wallets and privacy-focused tokens. The guidelines aim to ensure that investigators can safely manage wallet addresses, private keys, and digital evidence, marking a shift from traditional asset storage methods.

KNPA eyes private custody provider despite budget constraints

A police spokesperson emphasized the urgency of the change, noting that investigative practices must evolve alongside emerging technologies. Unlike physical assets, once stored in warehouses, crypto requires technical expertise and structured systems to prevent loss or unauthorized access.

Beyond internal protocols, the KNPA is also working to appoint a private custody provider to manage seized digital assets, with plans to finalize the selection in the first half of 2026. However, the process has faced setbacks. Three bidding rounds in 2025 reportedly failed after applicants were deemed unsuitable.

Budget limitations have further complicated efforts. The agency allocated just 83 million won (around $55,600) for crypto custody, a figure seen as low given the scale of assets involved. Over the past five years, seized cryptocurrencies linked to concluded cases have reached approximately 54.5 billion won ($36.5 million), including significant holdings in Bitcoin and Ethereum.

Phishing incident exposes weak links in asset security

The push for reform follows a high-profile custody lapse earlier this year. Officials at the Gwangju District Prosecutors’ Office discovered during a routine audit that roughly 320 Bitcoin had disappeared from custody tied to a 2025 investigation.

In a surprising turn, the stolen assets were later returned by the unidentified hacker. Authorities subsequently liquidated the recovered crypto, transferring about 31.59 billion won ($21.5 million) to the national treasury.

South Korea’s Finance Minister Koo stated last month that a comprehensive review of all digital assets held and managed by public institutions during enforcement processes would be conducted by the government, the Financial Services Commission, and the Financial Services Commission, and the Financial Supervisory Service.

The incident has intensified scrutiny over how government agencies safeguard digital assets, underscoring the need for robust custody frameworks as crypto adoption and associated risks continue to grow.