South Korean financial regulators are actively considering a significant policy shift that would grant them the power to freeze cryptocurrency accounts suspected of market manipulation before profits are moved or hidden. The Financial Services Commission (FSC) is reviewing a "payment suspension system" specifically for digital assets, aiming to close enforcement gaps that currently allow suspects to transfer funds during lengthy court approval processes.
The proposed measure mirrors existing rules under South Korea's Capital Markets Act, which was amended in April 2025 to allow for the freezing of accounts involved in illegal short-selling or unfair trades in traditional securities. "Profits from unfair practices can disappear quickly before action is taken," an unnamed FSC official stated, highlighting the need for faster intervention. The FSC argues that the current requirement for a court warrant creates delays, enabling tactics like front-running and wash trading to go unpunished as funds are shifted into cold wallets.
This initiative marks a shift in the country's regulatory approach. The first phase of South Korea's crypto law focused on user protection and exchange accountability. Now, in its second phase, the focus is expanding to broader market integrity and anti-manipulation enforcement. A closed-door meeting was held in November 2024 to discuss applying these preemptive suspension powers to crypto, coinciding with a review of the first suspected manipulation case under the new Capital Markets Act rules.
The FSC's push is part of a wider regulatory tightening. In a separate but related move, the National Tax Service (NTS) warned in October that cold wallets could be subject to home searches and asset seizure in tax investigations. Furthermore, in December, the FSC examined proposals that would hold crypto exchanges fully liable for user losses from hacks or system failures, even in the absence of direct negligence. The Financial Intelligence Unit is also set to impose heavy penalties on major exchanges for widespread anti-money laundering violations.
These cumulative steps signal South Korea's intent to align cryptocurrency oversight with traditional financial market standards, enabling faster and more direct action against financial crimes in the digital asset space.
