FSC: 'Bithumb incident exposes vulnerabilities in crypto exchange systems… comprehensive review of internal controls'

South Korea’s Financial Services Commission (FSC) said it will move to inspect exchange systems following a recent incident at cryptoasset (cryptocurrency) exchange Bithumb involving the erroneous transfer of Bitcoin (BTC).

On the 11th, Kwon Dae-young, vice chairman of the FSC, attended a plenary meeting of the National Assembly’s Political Affairs Committee and said, “The Bithumb incident is a very serious case that has exposed cryptoasset-related risks and structural weaknesses in internal control systems,” adding, “We will conduct an overall review of internal controls at all exchanges and impose internal control obligations commensurate with those applied to financial companies.”

According to authorities, of the 620,000 bitcoins erroneously transferred in the incident, about 618,000 have been recovered. However, roughly 13 billion won tied to 1,788 bitcoins that have already been sold has yet to be recovered.

Vice Chairman Kwon explained, “Immediately after the erroneous transfer occurred, the FSC, the Financial Supervisory Service and the Korea Financial Intelligence Unit (KoFIU) began assessing the situation and implementing user-protection measures through inter-agency consultations.”

He added, “We will inspect all cryptoasset exchanges, including Bithumb, focusing on their cryptoasset holdings and management status and overall internal controls, and verify through on-site inspections whether they are fulfilling user-protection and anti-money-laundering obligations,” noting, “We will also review measures such as imposing strict liability for damages when users suffer losses due to IT system incidents, and mandating periodic checks by external institutions of cryptoasset holdings, and promptly reflect them in phase-two legislation.”