South Korea Cracks Down on Crypto Lending: Regulatory Hammer Falls on Digital Asset Services
Seoul tightens the screws on crypto lending platforms—new regulations demand full licensing and transparency from all digital asset service providers.
Compliance or Collapse
The Financial Services Commission mandates that all crypto lending operations must now register as formal financial institutions. Unregistered services face immediate shutdown—no grace period, no exceptions.
Investor Protection Push
New rules require platforms to disclose all lending terms, interest calculations, and risk factors in plain language. Hidden fees? Gone. Opaque operations? Finished.
Market Impact
Short-term pain for long-term gain—while some platforms scramble to comply, the move signals South Korea's commitment to legitimizing crypto markets. Because nothing says 'mature asset class' like needing permission slips from regulators who still don't understand blockchain basics.
The Financial Services Commission (FSC) of South Korea recently introduced a new guideline aimed at regulating credit services offered by centralized cryptocurrency exchanges. Effective from September 5, the regulation caps the interest rates for crypto loans at 20% and prohibits leveraged loans that surpass collateral value. By introducing these guidelines, the FSC intends to curb risky financial practices in crypto markets.
ContentsNew Rules for Cryptocurrency LoansAlignment of crypto ExchangesNew Rules for Cryptocurrency Loans
According to Chosun, the guidelines specify that crypto loans cannot exceed a 20% interest rate. Borrowing that exceeds the value of collateral and products demanding cash repayments will not be permitted. Companies are required to offer these services using their own equities only, thus disallowing indirect methods through third parties to circumvent the regulations.
South Korea’s New Cryptocurrency Rules
Under the new regulations, users’ credit limits will be determined depending on their transaction history and experience. It is mandatory to notify borrowers beforehand if they are at risk of liquidation. The regulatory oversight is entrusted to the Digital Assets Exchange Alliance (DAXA), formed by local exchanges. The FSC plans to formalize these rules into legislation based on the outcomes of the new implementation.
The credit services are restricted to the top 20 cryptocurrencies by market value. Additionally, assets that are traded on at least three licensed local exchanges can also be considered. However, if any of these cryptocurrencies are categorized under a warning status by the exchange, issuing loans against such digital assets will be immediately ceased.
Alignment of Crypto Exchanges
The regulation was initiated following the introduction of credit services by major exchanges like Upbit and Bithumb. On August 19, the FSC had instructed local exchanges to temporarily halt their credit activities. The new guidelines establish a permanent framework in this domain.
FSC has stated that the regulation was crafted after considering international examples and is in alignment with global practices. Through these comprehensive measures, South Korea has taken a significant step forward in enhancing user protection and ensuring market stability in crypto lending.
You can follow our news on Telegram, Facebook, Twitter & Coinmarketcap Disclaimer: The information contained in this article does not constitute investment advice. Investors should be aware that cryptocurrencies carry high volatility and therefore risk, and should conduct their own research.