Financial Regulator Deploys AI to Monitor Crypto Market 24/7

South Korea's Financial Supervisory Service (FSS) has introduced an AI-driven market surveillance system to identify and combat market manipulation in the cryptocurrency space around the clock. Launched on August 20, the AI-powered system leverages generative AI and machine learning algorithms to tackle the challenges posed by monitoring thousands of crypto assets across multiple exchanges.

Initially developed in January to spot price manipulation, the AI system has been expanded to oversee the broader surveillance process. Key to the system is its ability to detect short-term price manipulation, such as "racehorse" and "cage" schemes, which are forms of pump-and-dump activity. When unusual patterns are detected, the generative AI scrutinizes exchange announcements and news related to the asset, assessing whether there's a legitimate explanation for sudden price or trading volume shifts.

If manipulation is suspected, the FSS retrieves trading data and examines whether a formal investigation is warranted. The surveillance system also extends to online platforms, including YouTube and message boards, where it tracks signs of unfair trading through text analysis of video audio and subtitles. AI can identify potential illegal front-running, dissemination of false information, and encouragement of investors to buy specific assets.

The AI also automates in-depth analysis by examining account-level order participation rates and trading profits, tracing linked accounts, and pinpointing periods of suspected manipulation. The final decision to launch an investigation relies on FSS investigators reviewing AI-generated reports. The FSS plans to further expand the system to track fund flows and blockchain-based transactions, enhancing its AI-based market surveillance and investigation capabilities.