FSS launches targeted probe into crypto market manipulation as a 'high-risk area'

South Korea’s Financial Supervisory Service (FSS) is launching a targeted probe into high-risk conduct in virtual assets (cryptocurrencies) that undermines market order, including price manipulation. It is also pushing to introduce punitive administrative fines for IT incidents and to strengthen chief executive officers’ (CEOs) accountability for cybersecurity, in a bid to reduce IT risks across the financial sector.

On the 9th, the FSS announced its work plan for this year containing these measures. The regulator cited as key high-risk practices in the crypto market price manipulation by so-called “whale” investors deploying large pools of capital; “fishbowl” trading that exploits tokens whose deposits and withdrawals are restricted at specific exchanges; and “racehorse”-style trading that sends prices surging through large-scale accumulation over a short period.

Price distortions using market-order APIs and the spread of false information via social media are also included in the scope of the probe. The FSS plans to build a system that analyzes abnormally surging virtual assets on a seconds-and-minutes basis to automatically extract suspected time windows and related trading groups, and to add AI-based text analytics capabilities as well.

Regulatory groundwork for virtual assets will also proceed in parallel. In preparation for the introduction of the Basic Act on Digital Assets, the FSS will set up a dedicated task force and establish a disclosure framework related to virtual-asset issuance and the provision of trading support, as well as an authorization review manual for digital-asset service providers and stablecoin issuers. It will also pursue separate management of exchange fees and further granularity in disclosure items.

Strengthening responses to financial crimes affecting households was also presented as a key task for this year. To combat illegal private lending and voice phishing, the FSS will expand information sharing between financial institutions and telecom companies and build an AI-based early-blocking system for victimization. It also plans to reinforce coordination with the police so that voice-phishing cases can be transferred to a criminal investigation immediately after initial fact-finding.

IT risk management in the financial sector will be further tightened. The FSS will review introducing punitive administrative fines for IT incidents, clarify the security responsibilities of CEOs and chief information security officers (CISOs), and push to adopt a cybersecurity disclosure regime. It said it will conduct on-site checks and inspections if financial companies fail to remediate material IT vulnerabilities.

In addition, it will fully activate the financial sector’s integrated monitoring and response system (FIRST) within this month to share cyber threat intelligence, and will also develop ethical standards and a risk-management framework for financial firms’ use of AI. To enhance user protection at payment gateway (PG) firms, it will also pursue the introduction of dedicated deposit products for prepaid balances and conduct checks on the status of external management of settlement funds.