South Korea May Freeze Crypto Wallets Based on Suspicion Alone Under New Proposal

Key Takeaways

• South Korea’s FSC is considering a preemptive payment freeze system for crypto wallets suspected of market manipulation, even before full evidence is available.

• The proposal aims to stop rapid transfers to private wallets, mirroring stock market freezes used to curb illicit gains.

• As of January 2026, the plan remains under review as part of Phase 2 crypto regulations, with no formal rollout yet.

South Korea’s Financial Services Commission (FSC) is weighing the introduction of a “payment freeze” system for the crypto market.

If approved, the measure would allow authorities to temporarily suspend transactions from crypto accounts or wallets flagged for suspected market manipulation or other illicit activity, even at the early stages of an investigation.

According to local reports, the proposal is designed to prevent suspects from quickly moving or concealing funds in personal wallets—a challenge unique to cryptocurrencies due to their speed, pseudonymity, and cross-border nature.

The framework mirrors existing safeguards in South Korea’s stock market, where regulators can freeze accounts suspected of manipulation before profits are withdrawn.

Under the proposed system, authorities would be able to issue temporary transaction suspensions on crypto accounts or wallets identified during criminal probes.

These preemptive freezes would restrict outflows while investigations are ongoing, limiting the ability to launder or disperse funds.

Virtual asset service providers (VASPs) would be required to comply with regulatory orders, similar to how banks execute account freezes in traditional finance.

The proposal falls under South Korea’s second phase of virtual asset legislation, which builds on earlier reforms such as the Virtual Asset User Protection Act (VAUPA).

The goal is to strengthen investor protection by enabling faster intervention before illicit proceeds disappear.

A task force under the Korea Financial Intelligence Unit (FIU), led by Director Lee Hyeong-ju, was formed to review these measures. Its first meeting took place in November 2025.

The proposal comes amid heightened concern over crypto-related financial crimes, including price manipulation, tax evasion, illegal remittances, and cross-border money laundering.

South Korea has faced several high-profile incidents in recent years, most notably the 2022 Terra-LUNA collapse, which exposed weaknesses in market oversight and accelerated regulatory tightening.

More recent exploits, including a major exchange hack resulting in over $1 billion in losses, have further intensified scrutiny.

Regulators have also flagged an increase in “smurfing” tactics, where large illicit sums are broken into smaller transfers to evade detection.

Transactions below 1 million won (roughly $680) have been a common loophole.

According to FIU data, more than 36,000 suspicious transaction reports were filed in the first eight months of 2025 alone, with nearly 90% linked to illegal foreign remittance schemes known as “hwanchigi.”

These developments have exposed gaps in South Korea’s existing anti-money laundering (AML) framework, which predates the rise of digital assets.

The FSC’s proposal also aligns with international standards set by the Financial Action Task Force (FATF), including tighter enforcement of the Travel Rule.

While the rule previously applied only to transfers above 1 million won, regulators are now considering extending it to all transactions to close remaining loopholes.

For now, the payment freeze system remains under review, with further discussions expected as South Korea finalizes its Phase 2 crypto regulatory framework.

The post South Korea May Freeze Crypto Wallets Based on Suspicion Alone Under New Proposal appeared first on ccn.com.