South Korean Regulators Target xAI’s Grok: Another Crypto-Adjacent Tech Faces Government Scrutiny

Seoul turns its regulatory gaze from digital assets to artificial intelligence. The country's financial watchdog has launched a formal probe into xAI's chatbot, Grok—scrutinizing its data practices, market influence, and potential to disrupt more than just conversation.

The New Frontier for Watchdogs

Move over, crypto exchanges. South Korea's Financial Supervisory Service is now dissecting AI. The investigation focuses on how Grok handles sensitive information and whether its unfiltered, real-time responses could sway markets or bypass existing financial controls. It's not about banning innovation—it's about mapping its risks.

Why Crypto Traders Should Care

AI and decentralized finance are converging. Algorithms already parse news, execute trades, and manage portfolios. A regulated Grok could mean tamer, more predictable AI tools for finance. An unregulated one? Pure alpha for those who harness it first—or systemic risk if it goes rogue. The FSA's move signals that AI's financial applications won't fly under the radar.

The Compliance Clock is Ticking

xAI now faces the same rigorous demands that once reshaped Korea's crypto landscape. Data localization, audit trails, transparency in training data—the checklist is long. For a chatbot built on 'reckless truth,' compliance might be its toughest prompt yet.

One cynical finance jab? This feels familiar. Another disruptive technology rolls in, promises to change everything, and then spends half its time in meeting rooms with lawyers. Some things never change—even in the future.

The Korean government to conduct a review into Grok

According to reports, the review follows several reports that surfaced locally and overseas, accusing Grok of being used to create explicit and nonconsensual deepfake images, with most of them involving real individuals and minors.

With this, the PICP will reportedly determine its next course of action after reviewing the explanation provided by Grok and other supporting documents. The agency is also expected to review global regulatory trends, which WOULD shape its decision-making.

Under the Personal Information Protection Act, altering or generating sexual images of identifiable individuals without consent may constitute unlawful handling of personal data.

The AI chatbots, which are integrated into the social platform X and offer both text and image generation on the platform, have faced several criticisms over the creation of fake images of real people since last year. The chatbot has been used to create all sorts of compromising images, which have been frowned upon by the general public.

According to the global nongovernmental organization Center for Countering Digital Hate, Grok is estimated to have been used to generate more than three million sexually explicit images between December 29, 2025, and January 8, 2026.

The organization claims that among that number, more than 23,000 were images of minors generated using the chatbot. The center warned that the rapid spread of Grok’s AI-generated images has led to a large-scale circulation of explicit content online.

The regulator wants a report on measures taken to curb the menace

The center has also warned about the serious safety risks that the development poses to children. As a result of this menace, countries like the United States, the United Kingdom, France, Canada, and some others have launched investigations, while countries like Indonesia, the Philippines, and Malaysia have blocked access to Grok.

In response to the controversy, xAI announced earlier this year that it had implemented certain technical measures to prevent it.

The platform claimed that it has stopped both free and paid users from editing or generating images of real people, adding that it would announce further safeguards very soon.

In Korea, the Media and Communications Commission (KMCC) demanded stronger youth protection measures from X on January 14. The Korean regulator told the social media platform that its AI firm needs to come up with a plan to prevent the generation of illegal or harmful content.

In addition, the regulator also added that the company needs to limit minors’ access to such content.

Currently, X has a designated youth protection officer in Korea in accordance with the law and submits annual reports on related compliance. KMCC has urged the platform to submit additional documentation regarding Grok’s safety protocol, noting that nonconsensual sexual images created and distributed on its platform, especially involving minors, are a criminal offense in Korea.

The commission has set a deadline of two weeks. If X fails to respond or ignores the request, it may impose an administrative fine of up to 10 million won ($6,870). The same MOVE has been witnessed in other countries, where xAI has been tasked with coming up with measures to curb the rise of the menace.

Like Korea, the countries have also announced substantial fines if the company fails to devise and submit a report showing the steps it has taken to limit the rise in the menace.

Want your project in front of crypto’s top minds? Feature it in our next industry report, where data meets impact.