Star Xu, CEO of OKX, has apologized to customers who experienced a temporary lockout of their accounts due to an algorithmic miscalculation of suspicious behaviour. Users who experienced this misfiring of the automatic lockout system were unable to access their funds until their accounts were reinstated. One user was very upset because he could not access his account worth 11,000 USDT since June. The automatic lockout system was trained to detect money laundering and other suspicious activities. Xu explained to customers that the automatic system was creating too many False Positives when matching human behaviour.
OKX acknowledged that the automatic lockout system was not 100% accurate and was making a lot of false classifications. There were many normal customers who were classified as at risk subjects. OKX explained that they took an aggressive approach to user identification in order to appease regulatory bodies that expect a high standard. Money laundering presents high risk vulnerabilities for crypto exchanges because government bodies may shut down operations if the False Negative rate is too high. Fully verified users were sometimes asked to provide extra identification details. The automatic lockout algorithm uses various metrics to detect abnormal behaviour. OKX may conduct blockchain analysis to investigate a suspicious account.
Star Xu, CEO at OKX, said that the exchange was optimising their algorithms so that the 600 strong staff members could receive assistance when monitoring the exchange while adhering to regulatory laws. Xu said that machine learning was being used to improve customer response times and detect fraudulent activity. Xu admitted that the task was extremely complex because there had to be a balance between applying regulatory guidance and user access. The problem of False Positives caused many disruptions to the latter requirement, upsetting clients and disrupting business. The business of exchanges is caught between pressure from regulatory bodies and client demands. The environment has been particularly tough for exchanges due to the latest move by governments to ramp up financial security laws.
The automatic lockout system, Xu explained, is not a perfect system and does make errors from time to time. However, the system can be complemented with human interaction so that a customer service agent can request documents from a customer, such as proof of address, job, and source of funds. The verification process could still use a lot of improvement, said Xu, pointing out the positive aspects of having a automated lockout system in place. There have been many customers voicing their frustration on X, such as one client with the handle @weideyyds, who stated that OKX locked their account even though all of the KYC requirements were completed. The algorithm wanted to have a full 15-year employment history of the customer. There are other exchanges such as Coinbase that went through ‘growing pains’ when implementing new verification systems. It isn’t a pleasant process for clients to be asked personal details about their employment, finances, and residential address. Customers often complained about having to fill in the same information over and over again.
International standards, according to Xu, were the main reasons why OKX implemented the system. Xu assured customers that the system was not unfairly targeting anyone in particular. Xu promised that the lockout system would be optimised further so that it made fewer False Positives. OKX has prioritised this issue, despite only having 600 employees, because honest customers may become fed up with getting their accounts frozen and may search for a new exchange. OKX is currently making efforts to reenter the US market. They have bold new plans to create an IPO, which means they will become a publicly listed company. And they have settled their disputes with US regulators for $500 million.
