South Korea to Require Crypto Exchanges to Reconcile Balances Every Five Minutes

South Korea will require crypto exchanges to check every five minutes whether their books match the assets they actually hold and strengthen internal controls to standards applied to financial companies.

High-risk transactions that require manual processing, including event reward payouts, must be handled through separate accounts. Exchanges will also have to introduce a multi-approval process so employees can cross-check and approve transactions.

The Financial Services Commission announced the measures at a meeting with the virtual-asset industry at the government complex in Seoul on March 6.

The move follows an incident at a domestic exchange on Feb. 6, when it tried to pay an event reward of 620,000 won but mistakenly entered the unit as Bitcoin and overpaid 620,000 Bitcoin. The amount was 13 times greater than the exchange’s actual Bitcoin holdings and was worth about 60 trillion won ($41.1 billion).

After the incident, the Financial Services Commission, the Financial Intelligence Unit, the Financial Supervisory Service and the Digital Asset eXchange Alliance formed a joint emergency response team. The group carried out an urgent review of exchanges’ custody of customer assets and their internal control systems.

The review found the exchange lacked an adequate balance reconciliation system to compare held balances with book-entry assets. It also did not have a kill-switch system to immediately halt problematic transactions, the commission said.

Based on the findings, authorities will require all exchanges to build balance reconciliation systems that run every five minutes. They will also set detailed standards for automatically blocking trades when large mismatches are detected.

High-risk manual transactions, including event rewards, will be split into separate accounts. Exchanges must also build a validation system that compares input units and total amounts against pre-approved plans and automatically rejects transactions when discrepancies are found.

The measures also require a multi-approval framework. Exchanges must clearly separate transaction entry and approval roles, require third-party cross-checks and differentiate approval authority by transaction size.

Authorities will also introduce a standard compliance monitoring program to strengthen exchanges’ internal controls to the level of financial firms. Reviews of internal-control violations will be enhanced, and the inspection cycle will be shortened to every six months from once a year.

The due-diligence cycle by outside accounting firms will be shortened to monthly from quarterly. Disclosure requirements will be expanded to include wallet holdings and book-entry balances for each virtual asset.

Exchanges will have to inspect their internal control systems every six months and report the results to financial authorities.

Financial authorities plan to revise or enact self-regulatory rules for the institutional overhaul within March and complete the build-out of computer systems for constant balance reconciliation by next month.

Noh Jeong-dong, Hankyung.com reporter, dong2@hankyung.com