Lee Chanjin: "Virtual Asset Exchanges' Held Balances and Ledger Quantities Must Be Linked in Real Time" (Comprehensive)

Financial authorities agree on bank-level regulation
CEO of Bithumb: "We will define victim relief broadly"
There have been two mistaken overpayments in the past

Lee Chanjin, Governor of the Financial Supervisory Service, stated on the 11th that the balance held by virtual asset exchanges and their ledger reconciliation systems must be linked in real time.

Lee Jaewon, CEO of Bithumb, bowed his head and apologized at the plenary meeting of the National Assembly's Political Affairs Committee on the 11th, before answering urgent inquiries about the large-scale mistaken Bitcoin overpayment that occurred at the domestic virtual asset exchange. Photo by Yonhap News

◆Full-scale inspection of the 'proof-of-reserves system'

At the National Assembly Political Affairs Committee's emergency inquiry related to Bithumb that day, Governor Lee said, "Even five minutes (at Upbit) is not short; it is extremely long," adding, "Systemic safety can be secured only when there is a linkage system that makes the actual balance held and the quantity on the books match in real time."

Governor Lee said, "I fully agree that (virtual asset exchanges) should be regulated at the level of financial companies," and added, "Under the current law, internal control and risk management standards are not stipulated by law. There is an institutional limitation in that these parts are operated under a self-regulatory framework."

Referring to the 2018 Samsung Securities 'ghost stock incident', Governor Lee said, "At Samsung Securities, the IT system was overhauled so that it is no longer possible to input any amount that exceeds the total number of shares issued in the system."

Kwon Daeyoung, Vice Chairman of the Financial Services Commission, said, "There must be constant monitoring, and we will reflect (internal control standards) in the second-stage legislation and ensure they have binding force."

Governor Lee said he had ordered a full-scale inspection of the proof-of-reserves (POR) systems at virtual asset exchanges. POR is a system that allows customers to check, in real time, the assets owned by the virtual asset exchange they use.

Regarding criticism that, as in overseas jurisdictions, "applications from operators that have not introduced POR should be rejected," he replied, "This is something that the Korea Financial Intelligence Unit (FIU) must ultimately decide," but added, "We will make a cautious judgment, taking into account the current situation."

Lee Chanjin, Governor of the Financial Supervisory Service (right), is answering questions from ruling and opposition lawmakers during an emergency inquiry at the National Assembly's Political Affairs Committee on the 11th into the large-scale Bitcoin overpayment incident at domestic virtual asset exchange Bithumb. Yonhap News

◆Bithumb: "We sincerely apologize to the public"

Lee Jaewon, CEO of Bithumb, said, "I sincerely apologize to the people of this country, who must have been deeply distressed by the news of our mistaken event payout incident."

CEO Lee said, "We check information on the total digital assets we hold in real time," but acknowledged, "We admit that a verification system to cross-check whether the amount to be paid out matches the amount we hold was not applied this time."

In response to a question from Shin Jangshik, a lawmaker of the Rebuilding Korea Party, asking "How will you provide relief for the victims?", CEO Lee said, "We currently regard two areas as targets for victim relief: panic selling that occurred at the time of the sale of 1,788 coins, and positions that were forcibly liquidated," adding, "We will set and complete a broad scope of victim relief by receiving and reviewing various complaints that are being filed."

When asked by Han Changmin, a lawmaker of the Social Democratic Party, "Have there been previous incidents?", CEO Lee replied, "There were about two previous cases in which we mistakenly overpaid and then recovered the funds."

When asked, "Was it the same person in charge then and now?", he answered, "We had a multi-approval payment system in place from the beginning," and explained, "This was a human error that occurred while we were using two systems in parallel during the process of upgrading the exchange's operating system."

Earlier, on the afternoon of the 8th, Bithumb attempted to pay prize money ranging from 2,000 won to 50,000 won per person to winners of an event, but mistakenly entered the unit as "bitcoin" instead of "won," resulting in an erroneous payment of 620,000 bitcoins. It has been assessed as an unprecedented incident in which more than 60 trillion won worth of virtual assets, at book value, were mistakenly paid out in the system.

Bithumb blocked trading and withdrawals 35 minutes after the incident, recovering 99.7% of the mistakenly paid bitcoins. It additionally secured about 93% of the 1,788 bitcoins that were sold, but is believed to have failed to recover roughly 125 bitcoins. About 13 billion won remains unrecovered, and customer damages from low-price sales and price distortion are estimated at around 1 billion won.