Key insight
- South Korea’s FSS rolls out a 24/7 crypto monitoring system on July 19 to detect and prevent fraud in trading.
- Starting July 19, South Korea enforces its first crypto investor protection law, targeting market manipulation.
- New crypto surveillance by South Korea’s FSS aims to segregate and analyze irregular transactions. Effective July 19
The Financial Supervisory Service (FSS) in South Korea has introduced an inspection system developed with local exchanges, designed to spot suspicious activities and improve market integrity in cryptocurrency. The new monitoring framework will go live on July 19, coinciding with the enforcement of the country’s first regulatory framework for crypto investor protection.
From January to May, the FSS prepared a standardized reporting format for transaction data from local exchanges. This system segregates irregular transactions from regular ones, enhancing detection capabilities. The FSS utilized criteria from the Korea Exchange (KRX) to extract abnormal transactions, refining models through extensive simulations.
Major local exchanges, responsible for 99.9% of South Korea’s crypto trades, have integrated the monitoring system based on FSS guidelines. These exchanges have also established dedicated teams to monitor and report dubious transactions. The FSS provided detailed guidelines for uncovering illegal activities, such as using undisclosed information for unfair trading and price manipulation.
South Korean exchanges have set up a direct hotline with the FSS for reporting transactions that violate regulations. This direct communication line ensures prompt action against potential fraudulent activities.
Introduction of the Virtual Asset User Protection Act
On July 19, South Korea’s inaugural crypto law, the Virtual Asset User Protection Act, will take effect. This legislation aims to eliminate illicit market activities, such as using undisclosed information for crypto investments and manipulating market prices. It mandates that crypto service providers safeguard over 80% of deposits in cold storage and enroll in insurance programs to protect user funds against security breaches.
South Korean lawmakers are developing follow-up legislation to the Virtual Asset User Protection Act. Discussions include stablecoin regulation and allowing institutional trading of cryptocurrencies. The Digital Asset Exchange Alliance (DAXA) and 20 local exchanges have also introduced the “Best Practices for Supporting Digital Asset Transactions” guideline, addressing concerns about the potential mass delisting of altcoins.
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