(Bloomberg) -- South Korean regulators are increasing pressure on local crypto exchanges to root out questionable trading, part of efforts to improve investor protection with a new digital-asset law that takes effect later this month.

The Financial Supervisory Service is setting up a system to monitor for unusual crypto trading activity, the agency said in a statement on Thursday. Exchanges are advised to feed data and information into the system to ensure compliance with the legislation that becomes active on July 19, it added.

Red flags include trades outside of normal volume and price ranges, big transactions and unusually slow execution, according to the statement. One objective is to find accounts linked to “suspected” activity, the FSS said.

South Koreans are a mainstay of the crypto market. Earlier this year, the won supplanted the dollar as the most-used currency for swapping in and out of digital assets. About 10% of the population has exposure to tokens, and risky smaller coins — not market-leader Bitcoin — comprise the bulk of trading.

The FSS guidelines “could pose significant challenges for altcoins that cannot swiftly comply with regulatory requirements,” said Matt Younghoon Mok, senior foreign attorney and partner with Lee & Ko in Seoul, using a crypto-sector term for smaller digital assets.

South Korean exchanges are already reviewing the listings of more than 1,000 altcoins over the next six months to ensure compliance with the Virtual Asset User Protection act. An industry body said Tuesday that immediate “mass” delistings are unlikely, pushing back on the idea that the act may quickly choke some of the nation’s hallmark trading in highly speculative tokens.

Crypto is notorious for practices such as wash trading to artificially inflate prices and pump-and-dump ruses that leave investors with big losses. Regulations are tightening globally to impose greater control on the digital-asset marketplace.

Traders are likely to monitor the application of the user protection rules and related provisions to see if crypto prices take a hit. Bitcoin and smaller tokens have been struggling of late after a strong first quarter.

     

 

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