Watchdog widens crypto oversight after Bithumb glitch

South Korea’s financial regulators on Wednesday widened their oversight of major cryptocurrency exchanges, launching on-site inspections days after Bithumb mistakenly credited customers with 620,000 nonexistent bitcoins.

In a report submitted to the National Assembly ahead of a parliamentary audit, authorities said an emergency task force comprising regulators and the Digital Asset Exchange Alliance (DAXA) will begin inspections of Upbit, Coinone, Korbit and Gopax. The review will focus on asset verification procedures and internal control systems. DAXA is a consultative body formed by the country’s five largest exchanges.

Any deficiencies identified will be incorporated into DAXA’s self-regulatory framework and reflected in the second phase of Korea’s virtual asset legislation.

Regulators have already escalated their probe into Bithumb. The Financial Supervisory Service upgraded its on-site review of the exchange to a full-scale inspection Tuesday, intensifying scrutiny of its internal controls.

Authorities signaled that crypto platforms may soon be required to adopt control systems comparable to those of banks and brokerages.

“Under current regulations, virtual asset exchanges are not classified as financial institutions,” FSS Governor Lee Chan-jin said during the hearing. “Given that they handle significant volumes of assets and perform functions similar to financial companies, I agree they should maintain internal controls and management systems on par with financial institutions.”

Lee added that the inspection results for Bithumb are expected within the week.

Financial Services Commission Vice Chairman Kwon Dae-young echoed that view, saying exchange operators should face regulation at the same level as traditional financial firms.

Bithumb CEO Lee Jae-won issued a formal apology at the audit, taking responsibility for the incident. He attributed the error to inadequate control mechanisms during a system upgrade, which failed to detect abnormal increases in ledger balances.

“We will determine the scope of compensation for affected users through complaint reviews and regulatory inspections,” he said, adding that the company is considering technological upgrades to shorten the settlement cycle between ledger records and actual holdings, currently reconciled on a daily basis.