In a notable move, South Korean financial regulators are contemplating the introduction of a system aimed at enabling preemptive freezes on cryptocurrency accounts to combat digital asset price manipulation.
FSC Considers New Measures for Digital Assets
Tuesday’s reports from local media noted that the Financial Services Commission (FSC) has initiated discussions on implementing strategies to prevent individuals from concealing or withdrawing illicit profits from manipulative market activity in cryptocurrency.
During a meeting on January 6, it was revealed that regulators have been evaluating this proposal since November, focusing on potential legal actions against those involved in cryptocurrency price manipulation.
According to sources, there is growing consensus among officials on the need to enhance the existing Virtual Asset User Protection Act by introducing advanced measures for the confiscation of unlawful gains and the preservation of potential recovery funds.
The proposed system would aim to prevent fund outflows from cryptocurrency accounts suspected of generating profits through various deceitful practices such as pre-trading strategies, automated trading loops, and profit-taking at inflated market prices.
Currently, authorities are required to secure court warrants to freeze assets linked to manipulation activities, which restricts their ability to act swiftly and prevents preemptive measures against asset concealment. One committee member highlighted a similar payment halt system for stock manipulation, which the Capital Markets Act revamped in April.
Last September marked the first proactive intervention using this system, where regulatory bodies froze 75 accounts involved in a KRW 100 billion stock manipulation scheme carried out by affluent individuals.
Certain FSC representatives stressed the necessity of implementing such measures within the cryptocurrency sector, suggesting that once funds are moved to personal wallets, they become easier to hide. One specific remark indicated that “blocking only exchanges is insufficient as there are still other withdrawal channels available.”
Another committee member expressed support for a proactive payment suspension system as a preliminary step toward recovery, considering whether aspects of the Capital Markets Act should be integrated into the upcoming revisions of the Virtual Asset User Protection Act.
Updates on South Korea’s Virtual Asset Legislation
The anticipated Second Phase of South Korea’s Virtual Asset User Protection Act is now expected to be proposed by early 2026, rather than at the end of 2025 due to ongoing disagreements between the FSC and the Bank of Korea (BOK).
Financial authorities have been at an impasse regarding regulations surrounding stablecoin issuance and management, particularly regarding the role of banks in the process.
The Bank of Korea is advocating for a governance structure where banks hold a 51% stake in any stablecoin issuer in the country. Meanwhile, the FSC is wary that such a requirement could stifle innovation by reducing the involvement of tech companies.
Despite these delays, the foundational policies for the crypto regulatory framework have reportedly been established. Key measures will include enhanced investor protection policies such as liability for crypto operators and safeguards against bankruptcy for stablecoin issuers.
The upcoming bill is likely to mandate compliance with specific disclosure requirements and enforce stringent liability for damages related to cyber incidents, in line with the Electronic Financial Transactions Act.
