South Korea Deploys AI-Powered Market Surveillance System for Crypto Markets

South Korea's Financial Supervisory Service (FSS) has introduced an advanced artificial intelligence-powered market surveillance system to detect and prevent unfair trading and price manipulation in the country's cryptocurrency markets.

The new platform combines generative AI with machine-learning algorithms, allowing it to flag short-term price manipulation by referencing a historical repository of known market abuse tactics. It targets 'racehorse' schemes, where traders inflate token prices rapidly over short periods, and 'cage' schemes, where assets under temporary deposit and withdrawal limits experience sharp price swings.

The system also pairs Benford's law with machine-learning models to detect volume inflation, flagging wash trading and coordinated group trading. When suspicious activity is detected, the AI automatically scans related news coverage and official exchange announcements to assess whether the market movement stems from legitimate fundamental news.

Human oversight remains central to the process, with FSS investigators evaluating AI-generated reports before deciding whether to launch formal enforcement proceedings. However, industry observers have expressed concerns about relying on AI for regulatory enforcement, citing potential risks of false positives or unverified claims.