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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