South Korea Eyes Crypto Account Freezing to Curb Market Manipulation - What Investors Need to Know
South Korean regulators are sharpening their knives. The latest move? Exploring crypto account freezing powers to tackle market manipulation head-on.
Regulatory Arsenal Expands
Forget gentle warnings. Authorities now want the ability to freeze accounts suspected of wash trading, spoofing, or pump-and-dump schemes. It's a direct shot across the bow of bad actors who've treated crypto markets like their personal casino.
The Enforcement Dilemma
Traditional finance has circuit breakers. Crypto has... well, memes. This gap creates a playground for manipulation. The proposed measure aims to inject old-school market integrity into the new-school digital asset space. Whether it works depends on execution—and not getting bogged down in bureaucratic red tape.
Investor Impact & Market Sentiment
Short-term pain for long-term gain? Possibly. Legitimate traders might face temporary friction, but cleaner markets attract serious capital. It's the classic regulatory tightrope: protect investors without stifling innovation. South Korea's trying to walk it.
Global Ripple Effects
Watch this space. If South Korea implements this successfully, other regulators will take notes. We could see a domino effect across major crypto jurisdictions. Another step toward the institutionalization of digital assets—whether the anarcho-purists like it or not.
The bottom line? Regulation is catching up with innovation. For the crypto space to mature, it needs guardrails. Just don't expect Wall Street's playbook to work perfectly in a 24/7 global market that never sleeps. Sometimes the cure is as disruptive as the disease.
FSC Mulls Crypto Account Freezing System
On Tuesday, a local news media outlet reported that the Financial Services Commission (FSC) is discussing introducing a system to prevent suspects from hiding or withdrawing unrealized profits from market manipulation related to crypto assets.
In a January 6 meeting, the regulators revealed that they have been discussing the matter since November, exploring the proposal for prosecution measures against suspects of crypto asset price manipulation.
According to Newsis, some officials consider that there’s a need “to complement the current VIRTUAL Asset User Protection Act by implementing measures for the confiscation of criminal proceeds or the preservation of recovery funds in advance.”
The measure WOULD restrict fund outflows such as withdrawals, transfers, and payments from a crypto-related account suspected of obtaining illicit gains through typical market manipulation tactics, including pre-purchasing, repeated trades via automated trading, buying at inflated prices, and profit-taking.
Under the current rules, authorities must obtain court warrants to freeze assets linked to crypto manipulation, which leaves no means to act quickly and prevent asset concealment beforehand. One committee member reportedly referenced the payment suspension system for stock price manipulation, which was introduced through the revision of the Capital Markets Act in April.
This system saw the first domestic case of preemptively freezing accounts suspected of unfair trading last September, when the Joint Task Force for Eradicating Stock Price Manipulation imposed these measures on 75 accounts involved in a KRW 100 billion stock price manipulation case by a group of wealthy individuals.
Some FSC officials allegedly emphasized that this system is necessary for crypto assets, arguing that they are easier to conceal once transferred to personal wallets, with one noting that “currently, only exchange deposits and withdrawals are blocked, while withdrawals to financial institutions remain possible. Blocking those withdrawals would help swiftly prevent concealment.”
Another FSC member affirmed that “payment suspension is a step before recovery preservation; it would be good if we could implement it proactively,” while others asked whether provisions related to unfair trading in the Capital Markets Act can be partially replicated in the Second Phase of the Virtual Asset User Protection Act.
Second Phase of SK’s Virtual Asset Push
South Korea’s Second Phase of the Virtual Asset User Protection Act was expected to be submitted at the end of 2025. However, it has been delayed until the start of 2026 due to an ongoing disagreement between the FSC and the Bank of Korea (BOK).
As reported by Bitcoinist, financial authorities have been clashing over rules related to the issuance and distribution of stablecoins, disagreeing on the extent of banks’ role in the issuance of won-pegged tokens.
The central bank has pushed for a consortium of banks owning at least 51% of any stablecoin issuer seeking approval in the country. The FSC has shared concerns that giving a majority stake to banks could reduce participation from tech firms and limit the market’s innovation.
Despite the delay, the main policies of the crypto framework have been reportedly decided. Notably, the FSC’s draft will include investor protection measures such as no-fault liability for crypto asset operators and isolation of bankruptcy risks for stablecoin issuers.
The bill is expected to require crypto asset operators to comply with disclosure obligations as well as terms and conditions. In addition, “impose strict liability for damages on digital asset operators in accordance with the Electronic Financial Transactions Act in cases of hacking or computer system failures.”
