The Financial Supervisory Service (FSS) of South Korea has moved from preliminary checks to a formal inspection of Bithumb, a leading cryptocurrency exchange, following an incident where a significant amount of cryptocurrency was erroneously disbursed. The FSS flagged the situation after determining that there were potentially serious violations of financial regulations. Notably, the investigation is focusing on the reasons behind the issuance of 620,000 bitcoins, which far exceed the actual holdings of 40,000 bitcoins reported by Bithumb as of the third quarter of the previous year.

Bithumb, like other centralized exchanges, operates through an internal ledger system where transactions are recorded without the actual movement of assets on the blockchain unless they are withdrawn. This duality has raised concerns about the security and integrity of assets held by the exchange. The FSS is investigating whether Bithumb violated the Virtual Asset User Protection Act, which mandates that asset service providers retain an amount of cryptocurrency equal to that entrusted by users. If found guilty, Bithumb could face fines up to 100 million KRW.

Additionally, the inspection will scrutinize Bithumb's internal control systems, particularly the alleged lapses that allowed for such a significant error in asset distribution. There are questions about whether the monitoring mechanisms to regularly verify the discrepancy between recorded and actual asset holdings were adequately operational. The FSS has vowed to treat this situation with utmost seriousness, indicating a commitment to maintaining market order and enforcing sanctions against any infractions, thereby signaling an intensified regulatory environment for cryptocurrency exchanges in South Korea.