Seoul Shakes Banking Cartel: Crypto Exchanges to Bypass Traditional Finance Rules

South Korea’s financial regulators just handed crypto exchanges a sledgehammer—and they’re aiming straight at the banking sector’s glass house.

The deregulation domino effect

New policies will let digital asset platforms operate with fewer banking partnerships, cutting legacy institutions out of lucrative crypto-fiat pipelines. TradFi banks—used to fat fees from mandatory real-name accounts—are scrambling as the FSA rewrites the rulebook.

Wall Street’s worst nightmare

Decentralized finance purists are cheering while traditional bankers clutch pearls (and balance sheets). One anonymous VP grumbled: ’They call us dinosaurs while literally mining digital coins.’

When the dust settles, this might be remembered as the day Korea’s crypto industry grew teeth—and the banking sector finally felt them.

Crypto Exchange Deregulation Now Inevitable, Sources Claim

The current banking rules require domestic fiat-trading crypto exchanges to partner with a bank that must provide platforms with customer banking services via dedicated crypto wallet-linked bank accounts.

In late April, the ruling People Power Party (PPP) unveiled a host of crypto promises, including a pledge to do away with the rule.

If the DP does indeed follow suit, this could mean the end of the era of exclusive banking deals. Instead, exchanges WOULD be free to strike deals with multiple banks.

And that could potentially spell trouble for K Bank, whose partnership with the market-leading exchange Upbit has led to exponential growth for both parties.

However, the media outlet wrote that the banking sector is now set to “undergo surgery” as “voices urging deregulation grow louder ahead of the presidential election.”

Frontrunner Mulls Manifesto Pledge

The media outlet claimed that the campaign team of the DP candidate and presidential frontrunner Lee Jae-myung is “strongly considering” making a near-identical pledge.

That would all result in K Bank “taking a direct hit,” the outlet continued. Critics have previously claimed that K Bank’s “dependence” on its Upbit-related business could derail its long-running bid to go public.

K Bank has been Upbit’s exclusive banking partner since mid-2020. Trades on Upbit account for almost 68% of the current total of the domestic South Korean market.

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South Korea is set to go to the polls on June 3 after the Constitutional Court ruled to impeach President Yoon Suk-yeol earlier this year. Lee leads in most polls by a margin of about 20%.

The DP has responded to the PPP’s bid to WOO younger voters with crypto-friendly policies with its own crypto pledges.

The party launched a Digital Asset Committee on May 13, headed by the pro-industry lawmaker Min Byoung-dug.

Min has previously called for tax parity between South Korean stock traders and crypto investors. He has also urged Seoul to green-light Bitcoin spot ETFs.

Regulators on Board With Deregulation Plans?

Regulators are also hinting that they could be prepared to soften their hardline stance on the crypto sector.

The same media outlet wrote that the Financial Services Commission (FSC) is now “looking into conditional deregulation measures.”

The FSC Chairman Kim Byung-hwan told reporters at a recent press conference:

“Since the existing banking rules were introduced to reduce the risk of money laundering, we will need to check to see if banks and exchanges have the systems in place that let them manage all related risks. We will conduct a comprehensive review. And after that, we will decide whether or not we need to improve the current system.”

An unnamed financial industry executive told the media outlet:

“Since there are so many voices calling for deregulation, we will have no choice but to go in that direction. But we need to gradually ease regulations, while ensuring we make up for any shortcomings.”