South Korea’s Financial Services Commission (FSC) is reviewing a proposal to allow preemptive account freezes. According to local sources , the proposal defines a system referred to as “payment suspension” that would enable authorities to block suspicious crypto transactions before illegal gains can be moved or hidden. The move is intended to address the unique challenges posed by cryptocurrency markets. Unlike traditional securities, crypto assets can be quickly transferred to private wallets, making enforcement difficult. The South Korean authorities argue that waiting for court approval often gives manipulators time to conceal their profits. The proposed system would act before legal proceedings, targeting unrealised gains linked to suspicious trading. Drawing on securities market experience South Korea already has similar enforcement tools in the stock market. The Capital Markets Act allows regulators to freeze accounts suspected of unfair trading. This mechanism has been effective in limiting manipulative activity in traditional markets. The new proposal would extend these powers to cryptocurrency exchanges. By applying a familiar framework, regulators hope to maintain market integrity without introducing entirely new rules. Officials highlight that the payment suspension would only apply to accounts showing signs of manipulation. The goal is to prevent suspicious actors from liquidating or hiding illicit profits. This preemptive approach reflects lessons learned from past enforcement delays. Currently, authorities can only intervene after a court order, which can take time. During this period, assets can be moved to external wallets, complicating recovery efforts. The proposed system aims to close this enforcement gap. The broader crypto regulatory context This initiative is part of South Korea’s broader push to tighten crypto oversight. The FSC is developing second-phase crypto legislation to enhance investor protections. Potential regulations include oversight of stablecoins and stricter anti-market manipulation rules. Authorities have also discussed holding exchanges liable for losses due to hacks or system failures. In addition, the National Tax Service (NTS) has signalled its ability to seize assets stored in cold wallets during tax investigations. Together, these measures indicate a comprehensive approach to improving accountability in the crypto sector. Officials note that early intervention is the key to preserving traceability of digital assets. By acting before funds leave exchanges, authorities can ensure more effective investigations. The payment suspension system would provide a legal mechanism to freeze assets at critical moments. This approach mirrors securities market practices while adapting them to the unique risks of crypto trading. Support within the FSC appears strong, with commissioners emphasising the importance of proactive measures. The proposal reflects a recognition that rapid trading and easy transfers make crypto markets particularly vulnerable to manipulation. If implemented, South Korea could become one of the first major markets to grant regulators the power to freeze crypto accounts preemptively. Such a system could serve as a model for other countries struggling to balance innovation with investor protection. The post South Korea weighs preemptive freezes on suspicious crypto accounts appeared first on Invezz
