South Korean prosecutors have arrested the CEO of local cryptocurrency exchange Coinnest.

CEO Kim Ik-hwan and a senior executive of the same firm were arrested for fraud and embezzlement. Prosecutors believe the executives siphoned funds out of customer accounts into their own.

Investigators are reportedly investigating another exchange also under suspicion of criminal activity.

The arrest follows the prosecutors' raid last month of three cryptocurrency exchanges at Yeouido, South Korea's equivalent of the US' Wall Street.

Korean authorities began investigations into digital currency exchanges early this year following the passing of regulations that demanded more transparency in dealings.

The Blue House, Korea's equivalent to the US White House, said the country will seek to increase transparency in cryptocurrency trading by stamping out illegal activities.

The nation will prioritize transparency in trading of virtual currency within the boundaries of the current law, and block illegal and unfair activities, but it stopped short of banning trading.

The government also vowed more scrutiny, and a separate raid on exchanges followed in January.

Coinnest is thought to be the fifth-largest exchange based on trading volume in South Korea.

Cryptocurrencies and blockchain are a hot trend in Asia. Korean chat giants Kakao and Line have recently formed blockchain subsidiaries.

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