South Korea is contemplating a new regulatory approach that would empower financial authorities to freeze cryptocurrency transactions before illicit profits can be transferred or laundered. This significant move aims to enhance market integrity as part of a broader strategy to strengthen oversight of digital assets.
Early Intervention Tools
The Financial Services Commission (FSC) of South Korea is considering a payment suspension system, which would enable regulators to block cryptocurrency transactions at an earlier stage. Local media outlet Newsis reported that this proposal aims to prevent suspected manipulators from moving or laundering potentially illicit gains.
Under current regulations, freezes often rely on judicial orders, a process that can be lengthy and provides opportunities for suspects to hide their assets. Authorities argue that the rapid nature of cryptocurrency markets necessitates quicker action compared to traditional assets, making timely intervention critical.
This proposed system mirrors tools already employed in the South Korean stock market, where accounts linked to suspected manipulation can be frozen before profits are realized.
Addressing Regulatory Gaps
Market oversight bodies have identified specific strategies that can yield large, destabilizing profits in cryptocurrency trading. These tactics include algorithmic trading, front-running, and placing high buy orders to inflate prices.
Such gains may vanish quickly once assets are transferred off exchanges. Regulators have emphasized the need for more robust tools to combat this issue because cryptocurrencies can be seamlessly moved into private wallets, making early intervention vital.
Lessons from Financial Markets
South Korea has already expanded its powers in traditional finance, with amendments to the Capital Markets Act taking effect in April 2025. These changes allow the freezing of accounts suspected of unfair trading or illegal short selling.
Reports indicate that the FSC discussed extending similar measures to the cryptocurrency sector during a closed-door meeting in November, particularly as authorities examined their first price manipulation case handled under the revised capital markets rules.
Increased Regulatory Scrutiny
This proposal builds on a series of initiatives aimed at aligning cryptocurrency regulation with standards observed in conventional financial markets. On October 10, the National Tax Service warned that cryptocurrency holdings stored in cold wallets remain subject to scrutiny, highlighting its authority to conduct home searches and seize offline storage devices as part of tax evasion investigations.
Additionally, on December 7, the Financial Services Commission evaluated the idea of imposing bank-like responsibilities on crypto platforms, which would require these platforms to compensate users for losses incurred due to hacking incidents or system failures, even in the absence of proven negligence.
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