South Korean Police Relaunch Custody Bidding with Stricter Security Mandates

After three failed attempts, the South Korean National Police Agency has reopened bidding for private custody services of seized virtual assets. This round introduces significantly higher budgets and stricter liability clauses, directly addressing previous issues of low funding and restrictive qualifications that left earlier tenders unsuccessful.

Expanded Eligibility and a Budget Multiplied by 3.2

The most notable change is the substantial budget increase. The police have raised the contract value to 267 million won, approximately 3.2 times last year's budget. Eligibility criteria for bidders have also been relaxed to attract more qualified participants. Seven entities, including BDACS, KODA, KDAC, Upbit Custody, HectoWallet One, DSRV, and AhnLab Blockchain Company, have submitted bids.

Past failures were attributed to several key factors:

  • Insufficient budget to cover the costs of professional custody services;
  • Overly strict qualification requirements that excluded potential bidders;
  • Perceived inadequacies in the asset safeguarding capabilities of some small and medium-sized enterprises.
The new tender appears tailored to overcome these hurdles.

Core Requirements: Air-Gapped Storage and Full Liability

The police have outlined precise and demanding technical and operational standards. The tender mandates that 100% of seized virtual assets must be stored in cold wallets completely isolated from the internet. This is considered the fundamental security baseline and a critical defense against cyber attacks.

Operational protocols further specify:

  • Assignment of independent wallet addresses for different police agencies to ensure clear provenance and segregated management;
  • Provision of 24/7 immediate response support by the custodian.

The most impactful clause, however, is the full compensation rule. Service providers must contractually guarantee that they will bear 100% financial responsibility for any loss, theft, or damage to assets under their custody. This clause transfers substantial financial risk directly to the custodian, compelling them to deploy the highest level of security resources.

Implications for the Industry

This move by the Korean police sets a new benchmark for security and liability in the virtual asset custody sector, particularly for assets held for judicial purposes. The full compensation rule acts as a powerful incentive and deterrent. It could raise industry standards by weeding out less secure operators, but may also increase service costs due to the heightened risk burden, potentially driving innovation in risk mitigation and insurance products.

The winning bidder is expected to be selected this week. Their performance will serve as a key case study in how South Korea implements its regulatory and judicial framework for virtual assets.