South Korea Considers Preemptive Account Freezes to Combat Digital Asset Market Misconduct

South Korea’s Financial Services Commission (FSC) is reviewing a “payment suspension” system that would allow temporary account freezes once suspicious trading patterns are detected, even prior to formal legal action. The concept draws on mechanisms already used in the stock market under the Capital Markets Act, where regulators can block accounts involved in unfair trading or illegal short selling. In one precedent, 75 accounts were frozen, halting roughly 40 billion won in potential gains.

South Korea is evaluating giving regulators the authority to freeze accounts before suspected illicit gains are moved, a measure aimed at strengthening oversight of the fast-moving digital asset market. Current enforcement relies on court-issued warrants, which authorities say are too slow to prevent manipulation or rapid transfers to untraceable wallets.

This proposal is part of a broader regulatory push toward more proactive supervision of virtual assets. Officials are exploring rules for stablecoins, assessing exchange liability for security breaches, and expanding tax enforcement to cover holdings in offline wallets. The National Tax Service has indicated it may seize offline crypto assets during tax investigations.

Authorities note that speed is critical in digital asset cases. Common manipulative tactics such as front-running, automated wash trading, and large artificial buy orders can generate significant gains that disappear if assets leave regulated platforms. Preemptive freezes would allow regulators to intervene before illicit profits are realized or transferred abroad.

The FSC emphasizes that enhancing preventive tools is necessary for market stability and accountability, signaling a shift from user-focused protections toward broader crime prevention and financial oversight. As the crypto sector grows in volume and complexity, regulators are seeking mechanisms to reduce the risk of fraud, manipulation, and illicit fund flows while aligning enforcement with the rapid pace of digital trading.