South Korea targets crypto violations with AI, new law

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• South Korea brings AI to crypto surveillance
• Detecting crypto trading anomalies
• Lawmakers pushes for expansion of FIU’s crypto powers

South Korea is increasing its focus on maintaining an orderly digital asset space, with the country’s finance regulator launching an artificial intelligence (AI)-based surveillance system to detect market manipulation and other forms of unfair trading in the crypto market in real time. At the same time, lawmakers are launching a bill to expand the powers of the country’s financial intelligence watchdog to investigate unregistered crypto businesses.

Regulator doubles down on AI assistance

On August 20, the Financial Supervisory Service (FSS) announced that it has developed and deployed a new AI-powered surveillance framework designed to detect and analyze suspicious crypto trading in real time, according to local outlet Business Korea.

The system is an attempt to modernize oversight of digital asset markets by applying AI to the challenge of monitoring thousands of tokens that trade 24/7 across multiple domestic and international exchanges.

To capture abnormal transactions in the virtual asset market in real time, the AI algorithm reportedly combines real-time transaction data analysis, online public information analysis, and automated in-depth analysis of suspicious assets.

“With the establishment of this AI-based market monitoring system, we expect to respond quickly and efficiently to increasingly sophisticated and complex unfair trading in virtual assets with limited personnel,” an FSS official said, as reported by AJP News Agency on August 20. “We also plan to further enhance the AI-based market monitoring and investigation system by developing additional features to support fund flow and on-chain tracking.”

The system will use the FSS’s accumulated investigative experience to automatically identify suspected short-term price manipulation cases, such as dramatic price fluctuations at specific times, surges in price for assets with restricted deposits and withdrawals, or artificial inflation of trading volume, such as wash trading.

For assets with suspicious or significant price and trading volume movements, the algorithm will reportedly also analyze related announcements, news, posts, and videos—examining subtitles and audio to determine the causes of price fluctuations and detect illegal pre-trading, dissemination of false information, and incitement to unfair trading.

Generative AI will also compile review reports summarizing the analysis, and if further investigation is deemed necessary, the FSS can then request additional trading data from exchanges.

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Lawmakers want more powers for finance sector intelligence agency

On the same day the FSS announced its new AI system, a group of South Korean lawmakers unveiled a bill that would amend an existing financial law, expanding the remit of the country’s Financial Intelligence Unit (FIU), a government agency specialized in financial crime intelligence gathering, to investigate unregistered crypto businesses.

On August 20, People Power Party representative Eom Tae-young and 10 other lawmakers filed a bill that would add a partial amendment to the “Act on Reporting and Use of Specific Financial Transaction Information.”

The current purpose of the Act is to provide for matters concerning reporting on and use of specified financial transaction information needed to regulate money laundering and financing of terrorism—such as information on foreign exchange transactions—and in so doing contribute to the prevention of crimes and the creation of a “sound and transparent” financial system.

Although the current law imposes reporting and anti-money laundering (AML) obligations on digital asset service providers, there are limitations to the effectiveness of responses because the FIU has difficulty enforcing the rules on unregistered firms, such as so-called “private coin exchange offices,” that operate without filing.

Specifically, the FIU can only identify suspected unregistered operators, relying on police and other authorities to actually pursue investigations.

As noted in the proposed bill’s rationale: “Despite the risk that unregistered virtual asset service providers may be exploited for crimes such as money laundering, illegal currency exchange, and illegal overseas remittances, a rapid response is difficult due to the structure that relies on cooperation between relevant agencies and requests for investigation.”

According to local outlet Yonhap News Agency, the police suspended investigations or preliminary inquiries into 23 of 25 unregistered virtual asset service providers referred by the FIU between August 2022 and August 2025.

To address this perceived lack of follow-through, the proposed amendment would allow anyone to report suspected violations of the law to the FIU and then authorize the agency “to take necessary measures such as investigation and analysis, or to file a complaint or request an investigation with the competent investigative agency if a violation is recognized.”

“This proposal aims to solidify the cooperative system with relevant agencies and eliminate regulatory blind spots in the virtual asset market,” read the filing.

The bill was referred to the Political Affairs Committee on August 21, where it currently sits awaiting debate before it can be passed to the National Assembly for a vote.

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