Category Archives: Coinnest

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South Korean Gov Check Finds Security Vulnerabilities at Crypto Exchanges

The outcome of a recent inspection of 21 domestic cryptocurrency exchanges by the South Korean government has just been released.

The inspections were conducted in June and July as a follow up to previous inspections in January and March of this year. The inspections identified 17 out of 85 items as needing immediate focus, 11 of which concerned crypto wallet management.

What was clearly identified in the March inspection was the fact that many of the exchanges lacked adequate security arrangements which included dedicated security and management staff, a password management system, crypto deposit and withdrawal controls, and a system to monitor wallets for abnormalities.

In this latest inspection, the government agencies responsible for the checks clarified that only 11 out of the 21 exchanges had dealt with the outstanding short-term adjustments to their systems. Eight had improved wallet management systems. These were: Upbit, Bithumb, Korbit, Coinnest, Coinlink, Coinone, Coinplug, and Huobi Korea. A government statement revealed that:

“In the management of virtual currency wallets, most of the vulnerabilities in the business have not yet been improved.”

Twelve companies didn’t provide adequate security arrangements to address data leakage and loss of funds from cold wallets and ten companies failed to identify and monitor suspicious activity. Ten companies still lacked wallet back up and recovery systems for clients.

There will be a follow-up inspection in September to check that the identified issues have been corrected. In addition,  new exchanges will also come under scrutiny under the same guidelines. Kim Jong-sam, a spokesperson for the Ministry of Information and Communication stated:

“Because of the weak security of virtual currency exchanges, we should be careful in investing…We will continue to check virtual currency exchanges to improve security.”

Kim went on to point out that many cryptocurrency exchanges are operating with “sub-par security systems” and investors need to be careful when selecting a platform to trade on.

Despite the checks and implementation of strict guidelines, regional governments are forging ahead with plans to develop major hubs such as Jeju Island by imposing favorable regulatory frameworks for crypto startups. Clearly, these will also come under scrutiny from government regulators to ensure the security guidelines are maintained.

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Crypto Exchange Execs Arrested In South Korean Raids

It was revealed on Thursday that four executives from two cryptocurrency exchanges are being questioned by South Korean police over alleged embezzlement.

The detentions of Kim Ik-hwan, CEO of Coinnest, and the other executives, whose names have not been published, is part of a crackdown on cryptocurrency fraud over the past few months. This arrest of Kim follows another raid last month of exchanges in Yeouido, South Korea’s own Wall Street equivalent.

The prosecutor’s office claim that billions of Korean Won (KRW) had been transferred from clients accounts. Coinnest, whose executives have now been replaced, is the fifth-largest exchange based on trading volume in South Korea. A “specialized management system” has been introduced at Coinnest in order to “resolve customer anxiety” since the arrest of the company’s CEO, according to a statement released this week.

The arrests demonstrate the South Korea government’s intent to clean up the industry following its adoption of further regulatory measures earlier this year. Although the government stopped short of banning trading, it has stated it needs to prioritize more transparency in dealings. Last year, the Financial Services Commission (FSC) prohibited domestic companies from participating in ICO activities. The FSC warned then that further measures would be introduced as part of an “intensive crackdown” including on-site inspections and analysis of user cryptocurrency accounts.

The new measures introduced at the end of last year saw a wave of arrests and closures of fraudulent companies marketing fake cryptocurrencies, which, according to FSC amounted to illegal profits of USD 22 million from around 1,000 investors. The measures were seen by many in the industry as the government’s answer to legislators in South Korea who wanted a complete ban on cryptocurrency trading.

Other measures to combat embezzlement include the requirement that cryptocurrency traders associate their real names to accounts, the prohibition of mining, and the ban on overseas institutions and individuals in domestic crypto trading.

 

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