Korea's Financial Regulator Deploys AI-Powered Crypto Market Surveillance System

The Financial Supervisory Service (FSS) in South Korea has introduced an AI-powered market surveillance system to monitor the cryptocurrency market around the clock. The system, launched on August 20, uses generative AI and machine-learning algorithms to detect market manipulation and unfair trading.

The FSS developed the algorithm in January to identify price-manipulation suspects and periods where they influenced orders and prices. It has now expanded the use of AI to cover the broader market-surveillance process.

The system can detect short-term price manipulation, including 'racehorse' schemes, which rapidly push prices higher during specific periods, and 'cage' schemes, where prices of assets subject to deposit and withdrawal restrictions experience sharp swings. It also uses Benford's law statistical method and machine learning to identify wash trading and coordinated trading designed to artificially inflate trading volumes.

The surveillance network extends beyond exchange data to online platforms, including YouTube and message boards. AI tracks potential signs of unfair trading by converting video audio and subtitles into text for analysis.