South Korean crypto exchanges adopt risk management code after Bithumb error

South Korea's Digital Asset Exchange Joint Council (DAXA) has introduced a "Code of Best Practices for Risk Management" for virtual asset service providers (VASPs). This initiative aims to prevent a recurrence of the large-scale mispayment incident that occurred at Bithumb earlier this year. The new guidelines are a direct follow-up to the findings and proposed improvements from an emergency response team formed immediately after the Bithumb event.

Under the new code, exchanges will be required to establish risk management committees and designate specific risk management officers. Crucially, they must also enhance internal controls designed to prevent mispayment accidents. The impetus for these regulations was the February 6th incident at Bithumb, where the exchange mistakenly distributed 2,000 Bitcoin (BTC) to 695 participants in an event, instead of the intended 2,000 Korean Won (KRW) per person.

Following the Bithumb mishap, financial authorities formed an emergency response team involving the Financial Services Commission, the Financial Intelligence Unit (FIU), the Financial Supervisory Service, and DAXA. This team conducted a review of the internal control systems of the five major South Korean won-based exchanges from February 10th to March 6th. The review uncovered vulnerabilities such as lax reconciliation of user asset balances, inadequate management of trading systems, and deficient internal control operations.

Based on these findings, financial authorities committed to promoting standardized, continuous balance reconciliation systems, managing high-risk transaction risks, and ensuring the effectiveness of internal controls. They also pledged to develop self-regulatory measures for risk management. The DAXA's newly announced code of best practices is the result of these efforts. The guidelines cover everything from establishing risk management frameworks to reporting accidents, aiming to foster a sound trading order and protect users.