In a significant move following a recent security incident, South Korea’s National Tax Service (NTS) is in the process of selecting a private custody provider to manage its seized cryptocurrency assets. The decision comes after a critical lapse in security was revealed when the recovery phrase for a wallet was inadvertently exposed, leading to unauthorized transfers amounting to approximately $4.8 million.

Following a report from ZDNet Korea, the NTS has begun reassessing its protocols regarding the custody of confiscated cryptocurrency. This evaluation comes in response to a serious incident on February 26, when the exposure of a wallet recovery phrase in an official press release triggered unauthorized transfers of digital assets.

In light of the incident, the agency has decided to thoroughly vet potential custody providers based on critical criteria such as security standards, the size of the firm, and whether they maintain insurance coverage under South Korea’s Virtual Asset User Protection Act.

To spearhead this initiative, a newly established task force dedicated to digital asset management systems will be leading the selection process. This task force is already engaged in numerous initiatives aimed at improving operational protocols, which will encompass the complete lifecycle of seized assets—from seizure to storage and eventual liquidation. Additionally, the task force will focus on conducting internal assessments and training personnel.

In tandem with these efforts, there are plans to establish a dedicated unit within the NTS to manage crypto-related activities more effectively. An official from the NTS stated that responsibilities related to cryptocurrency management are currently fragmented across various departments, but steps are being taken toward the creation of a centralized division.

This incident is not isolated, as South Korea has seen a series of similar security breaches involving other law enforcement and government agencies where seized crypto assets were reported as lost or compromised. In response to these ongoing challenges, the National Police Agency of South Korea has issued new guidelines for the proper handling of seized cryptocurrencies. These guidelines emphasize standardized procedures for managing wallet addresses, private keys, and storage systems.