South Korea probes 40 crypto manipulation cases in two years

South Korean financial authorities have investigated more than 40 cases of unfair crypto trading over the past two years, uncovering significant illicit profits. Financial Services Commission Chair Lee Eog-won disclosed that authorities identified an average of 1.4 billion won ($940,000) in unlawful gains per case. Of the total investigations, 30 cases were reported or referred to investigative agencies, resulting in the identification of 25 suspects.

The enforcement record highlights the tangible impact of the Virtual Asset User Protection Act, legislation designed to protect users who buy and store crypto with virtual asset service providers. The law, which took effect in July 2024, explicitly targets illicit activities including market manipulation, wash trading and insider trading. Regulators are demonstrating that the previously unregulated digital asset sector is now subject to rigorous oversight.

For executives operating virtual asset service providers, the operational environment has fundamentally shifted. The legislation expanded the Financial Services Commission's authority to directly supervise and inspect crypto firms. This means service providers must now navigate heightened regulatory scrutiny and maintain robust internal compliance frameworks.

The law also imposes strict structural requirements on how firms manage capital. Service providers are legally required to separate user deposits and virtual assets from their own corporate holdings. Crucially, client deposits must be held in traditional banking institutions, a rule designed to prevent the commingling of funds.

Lee highlighted the legislative milestone in an X post. “Today marks the second anniversary of the enactment of the ‘Virtual Asset User Protection Act...’ It was a meaningful time that brought the virtual asset market, which was outside the institutional framework at the time, into the fold of the law and created an opportunity to establish a user protection system for virtual assets,” Lee said.

Looking ahead, the regulatory focus is set to intensify through technological investment. “We will continue to enhance market surveillance investigation and monitoring systems based on AI, and proactively respond to high-risk areas,” Lee added.

For institutional investors monitoring the Asian crypto landscape, the integration of AI-driven surveillance signals a permanent shift toward market institutionalization. The aggressive pursuit of manipulation cases establishes a clear compliance baseline, penalizing bad actors while improving overall market integrity.