South Korea’s FSC Considers Payment Suspension System for Virtual Asset Market Manipulation

TLDR:

• FSC discussed payment suspension during the November meeting to freeze accounts before formal prosecution begins.
• The stock market model froze 75 accounts worth 100 billion won, preventing 20 billion won in unrealized profits.
• Personal wallet transfers make virtual assets easier to conceal than traditional financial instruments completely.
• A payment suspension system may be included in the Virtual Asset Phase 2 bill addressing unfair trading practices.

Virtual asset market manipulation suspects may soon face account freezes under a new system being considered by South Korea’s Financial Services Commission. 

The regulatory body is evaluating measures to prevent criminals from concealing unrealized profits gained through market manipulation activities. This initiative mirrors successful enforcement actions in traditional stock markets. 

The FSC discussed the proposal during a November meeting while reviewing virtual asset price manipulation cases.

Stock Market Model Inspires Virtual Asset Regulations

The Financial Services Commission is exploring a payment suspension mechanism similar to securities market enforcement tools. 

This system allows authorities to freeze accounts suspected of manipulation before formal prosecution begins. 

During the November meeting, members noted that there is a need to supplement the current Virtual Asset User Protection Act by taking measures to confiscate criminal proceeds or preserve fines in advance.

South Korea introduced payment suspensions for stock manipulation through Capital Markets Act revisions in April last year. 

The Joint Response Team to Eradicate Stock Price Manipulation first applied this power in September. Officials froze 75 accounts linked to the “Losing Mangshin No. 1” case involving 100 billion won in suspected manipulation. This marked the first instance of preemptive account freezing for unfair trading activities.

The suspects in that case had mobilized approximately 100 billion won to generate 40 billion won in market profits. Authorities successfully froze 20 billion won in unrealized gains from unsold stocks. 

A commission member stated the suspension of payments from 75 accounts in the case was very powerful. The member added that only by doing so can authorities freeze unrealized profits so suspects cannot sell them.

Enhanced Protection Against Asset Concealment

Commission members reached consensus during the November meeting about incorporating payment suspensions into virtual asset legislation. 

One official remarked that suspension of payments is a step before penalty preservation and should be implemented in advance. 

Another member requested consideration of the extent to which Capital Markets Act contents can be reflected in the virtual asset phase 2 bill regarding unfair trade.

Virtual assets present unique challenges for asset recovery due to their transferability to personal wallets. Current regulations only permit blocking deposits and withdrawals at exchanges and financial institutions.

A financial authority official explained that virtual assets are especially easy to hide, and once they enter personal wallets, tracking their destination becomes impossible.

The official added that currently only deposits and withdrawals from exchanges are blocked, along with withdrawals to financial companies. 

Blocking these transactions would help quickly prevent asset concealment. The proposed system would enable rapid intervention before suspects can hide their ill-gotten gains. 

Market manipulation tactics typically include pre-buying, automated trading, artificial price inflation, and strategic profit-taking activities.

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