South Korea's Bithumb said on Wednesday that serious flaws had left the crypto exchange's internal system susceptible to potential sabotage and failed to prevent an erroneous transfer of more than $40 billion in assets last week.

The country's second-largest virtual asset exchange said it accidentally gave away about 620,000 bitcoins to customers during a promotional event, instead of 620,000 won ($426), triggering a 17% slump in bitcoin's price.

Bithumb CEO Lee Jae-won said the giveaway amounted to 15 times the exchange's holding of 42,000 bitcoins, largely because a lag of about 24 hours in processing transactions delayed updates to the balance of virtual assets.

"We are acutely aware of the deficiency in internal system control," Lee told a parliament committee hearing on the incident that took place on Friday.

The exchange's policy of checking the volume of currency to be transferred against its actual holdings had failed and the amount was also not earmarked in a separate account to ensure the safety of the transaction, Lee said.

Most of the bitcoins have been retrieved by the exchange, but 1,786 had already been sold within minutes before the exchange froze the accounts of the customers that received them, regulators have said.

The customers who sold them are legally required to return them, they said.

Members of parliament expressed dismay at the failure of government and corporate oversight in the country's virtual assets market, which is one of the most active in the world by trading volume.

Financial Supervisory Service (FSS) Governor Lee Chan-jin said he personally believed the virtual currency market should be subject to the same regulatory oversight as banks and other financial services institutions, but it was not possible under existing laws and regulations.

($1 = 1,455.4700 won)

-Jack Kim/Reuters