South Korea Targets Fraudulent Trading With New Crypto Law

South Korea plans to commence the implementation of a new crypto law on July 19 with the aim of strengthening laws surrounding cryptocurrencies and keeping an eye out for fraud on exchanges.

TakeAway Points:

  • Under new rules that go into effect on July 19, South Korea’s Financial Supervisory Service will keep an eye out for odd trading activity on cryptocurrency exchanges.
  • The regulations target large transactions and trades outside of regular ranges, making it difficult for altcoins to quickly comply.
  • The new regulations could affect the price of cryptocurrencies, especially smaller coins, as 10% of South Koreans are exposed to tokens.

The regulatory crackdown in South Korea

South Korean regulators are intensifying their scrutiny of local cryptocurrency exchanges to eliminate dubious trading activities. This initiative is part of a broader effort to enhance investor protection under a new digital-asset law set to take effect on July 19. The Financial Supervisory Service (FSS) announced the establishment of a system to monitor unusual crypto trading activities. Exchanges are expected to feed data into this system to ensure compliance with the new legislation.

The FSS has identified several red flags, including trades outside normal volume and price ranges, large transactions, and unusually slow execution times. The primary goal is to identify accounts linked to “suspected” activities. South Korea’s crypto market is significant, with the won recently surpassing the dollar as the most-used currency for crypto transactions. Approximately 10% of the South Korean population is exposed to digital assets, with smaller, riskier coins dominating trading volumes.

Effect on Altcoins

The new FSS guidelines could pose significant challenges for altcoins, which may struggle to comply swiftly with the regulatory requirements. Matt Younghoon Mok, a senior foreign attorney and partner with Lee & Ko in Seoul, noted that these regulations “could pose significant challenges for altcoins that cannot swiftly comply with regulatory requirements.” South Korean exchanges are already reviewing the listings of over 1,000 altcoins over the next six months to ensure compliance with the Virtual Asset User Protection Act.

An industry body recently stated that immediate “mass” delistings are unlikely, countering fears that the new act might quickly stifle trading in highly speculative tokens. However, the crypto market is notorious for practices like wash trading and pump-and-dump schemes, which artificially inflate prices and leave investors with significant losses. Global regulations are tightening to impose greater control over the digital-asset marketplace.

Market Reactions

Traders are closely monitoring the application of the new user protection rules to gauge their impact on crypto prices. Bitcoin and smaller tokens have been struggling recently after a strong first quarter. The new regulations could further affect market sentiment and trading volumes. The FSS’s move is part of a global trend towards stricter crypto regulations, aimed at curbing illegal activities and protecting investors.

South Korea’s proactive stance is evident in its recent actions against illegal trading practices. The country imposed a record 27.2 billion won ($19.5 million) fine on two Credit Suisse affiliates for short-selling violations. This is the highest fine yet in South Korea for such violations since the nation started imposing fines on illegal short selling in April 2021. The country has also extended its blanket ban on short selling through March 30, 2025.

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