FSC: Crypto exchanges need internal controls on par with financial institutions

FSC Chairman Lee Eok-won convened an inspection meeting with the Korea Financial Intelligence Unit (FIU) and the Financial Supervisory Service (FSS) to discuss user protection and measures to improve the regulatory framework in connection with Bithumb’s recent erroneous payment incident involving virtual assets (cryptocurrencies).

According to the FSC on the 8th, Lee held a meeting that day at the Government Complex Seoul with Lee Se-hoon, senior deputy governor of the FSS, the FIU’s director for institutional operations and planning, and other officials to check whether any additional user losses had occurred and to review progress on the FSS’s on-site inspection. He also called for continued monitoring of the matter.

Financial authorities are said to have formed a consensus, using the incident as a catalyst, on the need to review crypto exchanges’ overall internal control frameworks and to strengthen institutional safeguards to prevent similar cases from recurring. The meeting focused on structural improvement measures to enhance exchanges’ reliability and transparency.

Lee said the incident exposed structural vulnerabilities in exchanges’ internal control systems and stressed the need to conduct a comprehensive review of internal controls across all exchanges, not limited to any specific operator. He underscored the importance of closely examining whether, in the process of distributing virtual assets to users, exchanges have put in place appropriate measures such as △a verification framework between ledger records and actual holdings △multiple confirmation procedures △mechanisms to control human error.

Accordingly, financial authorities plan to have each exchange conduct a voluntary review of its internal control system under the Digital Asset Exchange Alliance (DAXA), with the FSS to carry out on-site inspections based on the results.

Over the medium to long term, authorities will also pursue measures under the second phase of virtual-asset legislation to require exchanges to establish internal control standards comparable to those of financial institutions. The agenda also includes requiring virtual asset service providers to undergo regular checks of their asset holdings by external institutions and considering a strict liability regime in which operators would be held liable even without fault if users incur losses due to IT incidents and the like.