South Korea’s financial watchdog is weighing a new power to preemptively freeze crypto accounts it suspects are tied to market manipulation — a move regulators say could stop ill-gotten gains from disappearing into private wallets before prosecutors can act. What’s being proposed - The Financial Services Commission (FSC) has been discussing since November — and confirmed in a January 6 meeting — a system that would let regulators restrict outflows (withdrawals, transfers, payments) from crypto-related accounts when there are signs the funds come from manipulation. Local outlet Newsis first reported the deliberations. - The aim is to prevent suspects from hiding or cashing out unrealized profits gained via common manipulation tactics such as pre-purchasing, repeated automated trades (wash trading), buying at inflated prices, and rapid profit-taking. Why regulators want it - Under current rules, authorities generally must obtain court warrants to freeze assets linked to crypto manipulation, which can be too slow to stop transfers into personal wallets or other hard-to-trace destinations. - FSC officials argue crypto is especially vulnerable because assets can leave exchanges quickly; at present, only exchange deposit/withdrawal controls are routinely available while withdrawals to banks or wallets can still occur. Freezing those outflows, they say, would let regulators act swiftly to preserve recovery funds. Precedent from stocks - Regulators point to a similar “payment suspension” mechanism introduced in April by amendments to the Capital Markets Act. That system was used for the first time last September, when the Joint Task Force for Eradicating Stock Price Manipulation froze 75 accounts tied to a KRW 100 billion stock manipulation scheme. - Some FSC members want comparable powers for crypto, or at least provisions from the Capital Markets Act replicated in the upcoming Second Phase of the Virtual Asset User Protection Act. Timing and related policy fights - The Second Phase of the Virtual Asset User Protection Act had been expected by the end of 2025 but has been delayed to early 2026 amid a dispute between the FSC and the Bank of Korea (BOK) over stablecoin rules. - The BOK has pushed for any approved won‑pegged stablecoin issuer to be majority-owned (at least 51%) by a consortium of banks. The FSC warns that such a requirement could squeeze out tech firms and stifle innovation. What’s already settled - Despite the delay, key elements of the crypto framework are reportedly settled in draft form. The FSC plans investor-protection measures including no-fault liability for crypto operators, isolation of bankruptcy risks for stablecoin issuers, mandatory disclosure obligations and clear terms and conditions for operators. - The draft would also impose strict liability for damages on digital asset operators under the Electronic Financial Transactions Act in the event of hacks or system failures, according to reporting by Bitcoinist. Next steps - Regulators are still debating how to structure pre-emptive freezes and whether to fold similar unfair-trading provisions into the Second Phase of the Virtual Asset User Protection Act. With the bill’s submission now pushed to early 2026, further details and formal proposals are expected once the FSC and BOK reconcile their differences. Read more AI-generated news on: undefined/news

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