The Financial Supervisory Service (FSS) of South Korea announced a “continuous monitoring system” on July 4 for suspicious cryptocurrency transactions on exchanges. The new system, established in collaboration with South Korean digital asset exchanges, will go live on July 19, coinciding with the implementation of the Virtual Asset User Protection Act.Crypto exchanges subject to a new South Korean law will have to implement a system allowing authorities to receive reports on suspicious transactions to comply with the new system.
South Korea to Combat Market Manipulation and Illegal Trading
According to the FSS, the system would allow for ongoing observation of unusual transactions in order to identify and report any suspicious activity, such as market manipulation and other illicit trading activities. Approximately 99.9% of the nation’s trading volume will be covered by the monitoring, guaranteeing thorough market oversight.
South Korea's FSS launches a crypto monitoring system to track suspicious transactions.
— Moonward Capital (@moonwardcapital) July 4, 2024
This system, covering 99.9% of the country's crypto trading volume, goes live on July 19, aligning with the Virtual Asset Protection Act.
29 exchanges will be subject to this new law.
The agency also suggested that exchanges create specialized teams to keep an eye on suspicious transactions and offered guidelines for spotting illicit activity by auditing data, including on-chain data. These illicit practices include price manipulation, counterfeiting circulation data, and unfair trading based on undisclosed information.
Under the new arrangement, suspicious transactions will be reported to the FSS via a dedicated data transmission line as soon as they are discovered. The initiative is part of broader efforts to regulate unfair trade practices and protect investors, as mandated by the Virtual Asset User Protection Act passed in 2023.
The FSS created a uniform reporting format for local exchanges to submit transaction data submissions between January and May. The FSS developed a system that can identify irregular transactions based on this format.
The FSS said, “We prepared models and metric indicators through several simulations, which we expect will meticulously filter out abnormal transactions. We benchmarked KRX’s (Korea Exchange) criteria in extracting abnormal transactions.”
South Korea’s Crypto Exchanges to Face Stricter Monitoring and Compliance Under New Regulations
29 cryptocurrency exchanges—including well-known ones like Upbit, Bithumb, Coinone, Korbit, and Gopax—registered with the FSS as of June 16 and will be continuously observed. To further improve the integrity of the market, these exchanges are also subject to more stringent review requirements for token listings. In order to protect user funds, the new law also requires cryptocurrency service providers to keep over 80% of deposits in cold storage. They also have to enroll in insurance programs that could compensate users in the event of a security breach. South Korean lawmakers are currently developing follow-up legislation to the User Protection Act, addressing topics such as stablecoin regulation and allowing institutional crypto trading.Earlier this week, South Korean exchanges and their representative body announced the establishment of a new code of conduct for local firms. This includes re-evaluating 1,333 cryptocurrencies being traded domestically to ensure compliance with the new regulatory standards.