South Korean authorities are preparing to issue stricter regulations on cryptocurrency lending, targeting leveraged products of up to 4 times to protect investors.
According to a recent announcement, the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) will collaborate to establish a joint task force, with the goal of building and issuing a legal framework for this sector as early as next month. This move comes in the context of major exchanges like Bithumb and Upbit implementing collateralized loan products with concerning leverage ratios, increasing the risk of severe losses for retail investors in a highly volatile capital market.
Specifically, Bithumb recently allowed users to borrow up to 4 times the value of their collateral, while Upbit offers a loan limit of up to 80% of the customer's deposited assets. Due to the absence of specific regulations, the legal gap has led to insufficient protection for investors participating in these products.
The new task force will include direct participation from the Korea Digital Asset Exchange Alliance (DAXA). The group's mission is to develop a comprehensive set of rules for cryptocurrency lending, based on international standards as well as the characteristics of traditional stock markets. The rules are expected to include clear limits on leverage ratios, mandatory criteria for borrowers and collateral, as well as obligations to disclose risk information fully and transparently.
This is not an isolated move, but rather part of South Korea's overall strategy to enhance oversight, protect investors, and promote transparency in the digital asset sector. Alongside tightening regulations on cryptocurrency lending, the Bank of Korea (BOK) has also upgraded its central bank digital currency (CBDC) research group into a dedicated department for virtual assets.
This new unit will be responsible for supervising and proposing policies related to stablecoins and other cryptocurrencies, while closely coordinating with the government in the process of establishing legal regulations.
These aggressive legal moves occur in the context of the South Korean cryptocurrency market witnessing strong interest from traditional financial institutions. Major banks such as Kakao Bank and Kookmin Bank reported stock growth of between 10% and 19% last June, shortly after these banks registered trademarks related to stablecoins.
