South Korea's FSS launches AI-powered probe into whale manipulation and API spoofing

South Korea’s Financial Supervisory Service (FSS) is launching a targeted probe into high‑risk trading practices in the virtual asset market, focusing on whale-driven manipulation and API‑based spoofing, local media reported. The move is part of a wider enforcement push under the regulator’s 2026 plan and follows Yonhap’s report on Feb. 9. What the FSS will target - Large “whale” trades and coordinated schemes that artificially move token prices. The FSS singled out methods like the so-called “net cage” — where withdrawals and deposits are suspended for specific tokens to distort market activity — and “horse racing” tactics, where concentrated buying spikes a token’s price at a chosen moment. - API orders used to place deceptive trades and spoofing activity. - Use of social media and coordinated messaging to spread false information and manipulate token prices. AI and tech tools for real‑time detection The FSS says it will deploy advanced tools, including artificial intelligence, to detect suspicious activity down to second‑ and minute‑level timeframes. Capabilities will include: - Automatic flagging of abnormal trading intervals and suspect clusters of accounts. - Text analysis to uncover coordinated manipulation campaigns across social channels. - Systems to help prevent voice‑phishing by enabling near real‑time data sharing between telecoms and financial firms, and to lay groundwork for a future compensation system for victims. Regulatory and enforcement upgrades To reinforce oversight, the FSS plans to: - Stand up a preparatory team to support phase two implementation of the Digital Asset Basic Act, creating a disclosure framework for token issuance and trading, and issuing guidelines for licensing and reviewing exchanges and stablecoin issuers. - Establish a special judicial police consultative body to strengthen on‑site enforcement of financial crimes targeting consumers, reflecting President Lee Jae‑myung’s emphasis on cracking down on abusive financial practices. - Form a dedicated team to monitor IT risks across the financial sector, introduce new fines for IT‑related incidents, and carry out inspections and audits where firms fail to manage IT assets or address security vulnerabilities. Context: market fragility highlighted by Bithumb incident The announcement arrives days after a high‑profile operational failure at Bithumb, South Korea’s second‑largest crypto exchange, where an internal error accidentally distributed 2,000 BTC to users. The glitch briefly pushed Bitcoin prices on the platform more than 10% below levels on other major exchanges — underscoring the sector’s vulnerability to both manipulation and operational risk. Bottom line The FSS’s measures signal a more aggressive, tech‑enabled approach to policing crypto markets in South Korea: tighter surveillance, clearer rules for token offerings and exchanges, and stronger penalties and enforcement — all aimed at curbing market abuse and protecting consumers as the industry matures. Read more AI-generated news on: undefined/news