South Korea Introduces Surveillance System for Crypto Transactions Ahead of New Investor Protection Act
The Financial Supervisory Service (FSS) of South Korea unveiled a “continuous monitoring system” on July 4 to detect suspicious cryptocurrency transactions on exchanges. Set to commence operations on July 19, the system is a collaborative effort with South Korean digital asset exchanges, coinciding with the rollout of the Virtual Asset User Protection Act.
Under the new law, cryptocurrency exchanges in South Korea must implement a system enabling authorities to receive reports on suspicious transactions to ensure compliance.
Combatting Market Manipulation and Illegal Trading
The FSS emphasized that the system will facilitate ongoing surveillance of abnormal transactions to identify and report suspicious activities, including market manipulation and other illicit trading practices. This monitoring initiative will encompass approximately 99.9% of the nation’s trading volume, providing extensive oversight of the market.
Furthermore, the agency urged exchanges to establish dedicated teams for monitoring suspicious transactions and issued guidelines for detecting unlawful activities through audits, including scrutiny of on-chain data. Activities targeted include unfair trading based on undisclosed information, price manipulation, and falsification of circulation data.
Once suspicious transactions are flagged, they will be promptly reported to the FSS via a dedicated data transmission line. This initiative forms part of broader efforts mandated by the Virtual Asset User Protection Act of 2023 to regulate unfair trade practices and safeguard investor interests.
In the months leading up to this announcement, the FSS developed standardized reporting formats for transaction data submissions from local exchanges, enabling the construction of a system capable of identifying irregular transactions based on these formats. According to the FSS, the system was developed by benchmarking criteria from the Korea Exchange (KRX) to extract abnormal transactions and devising models and metrics through extensive simulations to meticulously filter out irregular transactions.
Stricter Monitoring and Compliance for South Korea’s Crypto Exchanges
Effective from June 16, a total of 29 cryptocurrency exchanges, including major platforms like Upbit, Bithumb, Coinone, Korbit, and Gopax, have registered with the FSS and will be subjected to continuous monitoring. These exchanges will also need to adhere to more rigorous review standards for token listings to enhance market integrity.
The new regulations also mandate that crypto service providers secure over 80% of deposits in cold storage to protect user funds and participate in insurance programs to compensate users in case of security breaches. South Korean legislators are currently working on supplementary legislation to the User Protection Act, focusing on issues such as stablecoin regulation and facilitating institutional cryptocurrency trading.
Earlier this week, South Korean exchanges, alongside their representative body, announced the adoption of a new code of conduct for domestic firms. This initiative includes a reassessment of the 1,333 cryptocurrencies traded domestically to ensure compliance with the updated regulatory standards.
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