South Korean regulators have announced inspections of local crypto exchanges and improved methods to address “blind spots” following Bithumb’s $40 billion (BTC) payment error.
New Task Force to Review Crypto Exchange Practices
On Monday, South Korea’s financial authorities announced that they will strengthen their efforts to regulate the crypto industry and promote a reliable trading environment for digital assets, local outlets reported.
After the “Bitcoin ghost” incident at Bithumb, the second largest cryptocurrency in South Korea, Financial Supervisory Service (FSS) Governor Lee Chan-jin revealed the inspection of the local exchange and emphasized the need to improve the law.
As reported by Bitcoinist, Bithumb accidentally distributed 620,000 Bitcoin, worth more than $40 billion, to 249 users who participated in the exchange’s “random box” promotional event due to an employee error.
Although 99% of the BTC was returned, this incident raised serious concerns about the internal regulation of the crypto exchange. Notably, Bithumb holds 175 BTC on its books, and less than 50,000 Bitcoin between its assets and assets held by clients, according to a regulatory filing from last year.
This means that the exchange system failed to prevent irregular activity, distributing goods that were not available to users and distorting market prices.
“The so-called Bitcoin ghost incident clearly revealed that, apart from a simple input error, there are structural weaknesses in the internal control and bookkeeping systems of cryptocurrency exchanges,” Kim Jiho, a spokesman for the ruling Democratic Party, said at a press conference on Saturday.
At the time, the Governor of the FSS confirmed that “the incident clearly exposed the structural flaws in the commodity trading system,” adding, “There are many aspects of the case that we consider very serious.”
As a result, the FSS, along with the Korean Financial Intelligence Unit (KoFIU), the Financial Supervisory Service (FSS), and the Digital Asset eXchange Alliance (DAXA), formed an emergency team to plan follow-up measures and review industry-wide procedures.
Reports noted that the task force plans to examine Bithumb and other domestic asset repositories, management practices, operating conditions, and internal control systems.
“We will carry out systematic investigations in high-risk areas in the physical asset market where unfair trading practices, such as market manipulation and spreading false information, are a concern,” Lee said.
Regulators Address ‘Structural Risks’
The FSS governor also warned that the program could go to a full investigation if any illegal activities emerge, adding that the incident will be reflected in the long-awaited second phase of the Consumer Protection Act, which is expected to act as a comprehensive framework for the entire industry.
“While we are making the second phase of the virtual property law, measures to deal with the vulnerability of properties in exchanges, revealed by the recent Bithumb incident, will be seen,” declared Lee.
“Since tangible assets are included in the legacy financial system, there is still work to be done to strengthen the regulatory and supervisory framework. This may be an opportunity to put the system in the right direction,” he continued.
It is worth noting that South Korean financial authorities are reportedly considering introducing a system to prevent suspects from hiding or disbursing unrealized profits from market manipulation related to crypto assets.
The Financial Services Commission (FSC) revealed last month that it is considering a proposal for measures to prosecute those suspected of manipulating the price of crypto assets, as some officials think there is a need to “comply with the current Act on the Protection of the User of Assets by implementing measures for the confiscation of criminal profits or the preservation of early recovery funds.”
The measure will limit the outflow of funds, such as withdrawals, transfers, and payments from a crypto-related account that is suspected of obtaining illegal profits through common market manipulation techniques.
Bitcoin trades at $69,010 in the one-week chart. Source: BTCUSDT on TradingView
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