South Korea is intensifying its oversight of the domestic cryptocurrency market as regulators push a faster, more coordinated approach to detecting suspicious trading activity amid renewed volatility. The Financial Supervisory Service (FSS) signaled it was examining sharp price movements in the ZKsync token (CRYPTO: ZKS) listed on Upbit, triggered by a system maintenance window that amplified trading anomalies in early February 2026. While the agency did not announce a formal investigation, it underscored a broader move to tighten market integrity around exchanges that regulators regard as critical financial infrastructure. The development follows a broader tightening of digital-asset supervision that pairs automated surveillance with a willingness to intervene sooner when red flags appear. Upbit’s operator Dunamu did not respond to requests for comment before publication.
Key takeaways
- The FSS is reviewing abrupt price swings in the ZKsync token (CRYPTO: ZKS) listed on Upbit, with the process potentially escalating to a formal investigation depending on findings from the data analysis.
- South Korea expanded its artificial intelligence-driven surveillance of digital asset trading, upgrading its in-house crypto intelligence system to automatically detect potential manipulation across multiple time frames.
- Regulators plan further upgrades to identify coordinated trading networks and to trace the origin of funds implicated in suspected manipulation.
- The Financial Services Commission (FSC) has discussed mechanisms for pre-emptive freezing of funds to curb illicit proceeds during active investigations, signaling a rapid-response posture.
- Courts are starting to apply criminal penalties under the Virtual Asset User Protection Act, with the Seoul Southern District Court delivering its first prison sentence related to price manipulation tied to a local token listed on Bithumb, reinforcing enforcement expectations for market participants.
Sentiment: Neutral
Market context: The actions reflect a broader trend of tightening crypto oversight in South Korea, aligning with global moves toward stronger market surveillance, clearer expectations for exchanges, and swifter enforcement against manipulation and illicit activity.
Why it matters
The regulatory push matters for investors and traders navigating a volatile market where liquidity can swing on fast-moving headlines. As authorities couple automated detection with a readiness to act, participants face higher operational compliance standards and more immediate risk of intervention during suspicious windows. The emphasis on exchanges as infrastructure underscores a shift from reactive enforcement to proactive risk management, with governance expectations around order handling, fund flows, and transparency likely to rise in the coming months.
For exchanges and platform operators, the heightened focus on system integrity—supported by AI-driven monitoring and potential pre-emptive fund freezes—could reshape how trading venues design and test their risk controls. It signals that regulatory expectations may extend beyond post-incident investigations to real-time surveillance and rapid corrective actions during unusual price activity. Builders and custodians of crypto services in Korea should anticipate more formalized benchmarks for market surveillance, data sharing, and fund movement tracing as part of operating licenses and ongoing compliance requirements.
What to watch next
- Timing and details of the AI surveillance upgrades: when the new capabilities will roll out and how they will be tested across different asset classes.
- Any formal investigations opened by the FSS or FSC related to the Upbit volatility event or other price-manipulation cases.
- Regulatory signals on pre-emptive fund freezes: whether such mechanisms become a standard tool in ongoing investigations.
- Subsequent enforcement actions linked to the Virtual Asset User Protection Act, including potential court rulings and penalties for manipulation.
Sources & verification
- FSS statements and coverage of automated crypto market surveillance enhancements (official statements and regulatory briefings).
- The Korea Economic Daily (Hankyung) coverage of the price spike around a system maintenance window for the ZKsync token listed on Upbit.
- Hankyung reporting on the Seoul Southern District Court’s first prison sentence under the Virtual Asset User Protection Act for price manipulation tied to a token on Bithumb.
- Cointelegraph reporting on the FSS expanding AI-based crypto-market surveillance and plans to detect manipulation across time frames.
- Cointelegraph coverage of discussions by the FSC around pre-emptive freezing of illicit funds during active investigations.
Regulatory momentum in Korea: from AI surveillance to enforcement
The trend toward tougher oversight in South Korea is crystallizing around three interconnected pillars: advanced surveillance technology, faster intervention capabilities, and criminal accountability. In early February 2026, the Financial Supervisory Service disclosed that it was examining sharp price movements in the ZKsync token (CRYPTO: ZKS) on Upbit, a signal that authorities intend to identify not just isolated anomalies but recurring patterns in how trading unfolds around system maintenance and liquidity pockets. The finding is consistent with the central bank-like posture regulators have adopted toward digital markets, where exchanges are treated as critical financial infrastructure requiring robust, auditable controls.
The FSS’s commitment to speeding up detection is underscored by the agency’s broader adoption of artificial intelligence to monitor digital-asset trading. Upgrading its internal crypto-intelligence system enables automated detection of potential manipulation across different time frames, a step that reduces reliance on manual investigations and facilitates earlier responses to suspicious windows. Regulators say the enhancements will expand later to include identification of coordinated trading networks and the tracing of funds used in suspected schemes. This is complemented by a willingness to deploy preventive tools, such as blocking or freezing funds pre-emptively when investigations indicate illicit activity while preserving legitimate customer assets.
The regulatory trajectory is not purely about surveillance; it also signals a readiness to enforce rules that previously could have lingered as warnings. On a related note, FSC-based deliberations about enabling pre-emptive freezing of funds demonstrate a proactive stance to halt illicit flows before investigations conclude. This approach aims to disrupt money-laundering networks tied to ongoing probes and to set a clear expectation that the legal framework will support rapid asset immobilization when warranted by evidence.
The enforcement dimension of Korea’s evolving regime was underscored by a landmark decision in the Seoul Southern District Court, which handed down its first prison sentence under the Virtual Asset User Protection Act. A crypto executive, identified only by the surname Lee, received a three-year term after being convicted of price manipulation involving a token listed on Bithumb. The court found that repeated cycles of high-price buying and low-price selling, combined with deceptive buy orders, constituted a deliberate attempt to distort market prices. The ruling demonstrates that regulators are translating legislative protections into tangible penalties, reinforcing the seriousness with which market integrity is treated in the country.
As authorities tighten the screws on market surveillance and enforcement, the industry will be watching closely for practical implications: how exchanges design and test their risk controls, how quickly regulators can respond to flags in real time, and how investors interpret the evolving landscape of compliance and accountability. The dialogue between regulators, exchanges, and market participants is moving from theoretical risk management toward concrete, verifiable standards that govern how digital asset markets operate in Korea.
