South Korea’s FSS moves toward sanctions on Bithumb over internal control failures

South Korea’s Financial Supervisory Service (FSS) is moving toward sanctions against crypto exchange Bithumb after an inspection found serious internal control failures. FSS chief Lee Chan-jin said the case is in a final legal review phase and the regulator is assessing whether Bithumb violated the 2023 Act on Virtual Asset User Protection. The trigger involves a problematic Bitcoin payment incident, though key details were not disclosed. Under the law, exchanges must maintain strong user protection, security, transparent operations, reserve requirements, and internal controls that can prevent, detect, and fix operational errors. FSS also signaled a broader enforcement push, referencing earlier actions and aiming for systemic improvements across South Korea’s digital asset market. For Bithumb, sanctions could include financial penalties, tighter supervision, mandatory remediation of controls, operational limits (such as restricting new services/registrations), and in extreme cases license revocation. For traders, the near-term impact is higher regulatory uncertainty around a major venue, which can translate into volatility and a reassessment of exchange exposure. Longer term, enforcement under the Virtual Asset User Protection Act may raise compliance expectations for other exchanges as well. Keywords: Bithumb, FSS, South Korea crypto regulation, internal controls, Virtual Asset User Protection Act.