South Korean financial regulators have taken action to control high-risk lending activities in the digital asset space, ordering local exchanges to suspend all cryptocurrency lending services until an appropriate regulatory framework is established.
The Financial Services Commission (FSC) confirmed on Tuesday that it issued an administrative guideline to exchanges, instructing them to stop allowing users to borrow funds against cryptocurrencies or fiat deposits.
The order took effect immediately and will remain in force until new lending rules are finalized.
Rapid growth, rising risks
Since the beginning of July, the popularity of cryptocurrency lending services has surged. Upbit launched a program allowing users to borrow up to 80% of deposit value in Korean won or digital assets using Tether (USDT), Bitcoin, and XRP as collateral.
Competitor Bithumb launched a similar product, offering loans worth up to four times the value held by customers. Other local platforms quickly followed suit.
This release coincides with the ruling party's proposed (Basic Law on Digital Assets), which aims to formally authorize lending services in exchange operations.
The FSC emphasizes that it intends to develop a clear rulebook for digital asset lending.
"We will act swiftly to formulate guidelines to protect users and ensure market stability," the agency stated, adding that existing loans can still be repaid or deferred under current contracts.
Exchanges that do not comply with the suspension order will face onsite inspections. Both Upbit and Bithumb had previously suspended lending in July, although Bithumb resumed operations under stricter terms before the new suspension.
South Korea eases cryptocurrency restrictions, paving the way for the first spot ETFs.
This crackdown comes as South Korea is broadly shifting towards regulated cryptocurrency adoption. Authorities are lifting restrictions on institutional trading and preparing to approve the country's first spot cryptocurrency ETFs.
President Lee Jae-myung's government is also developing a framework for stablecoins pegged to the Korean won, indicating that despite recent restrictions, digital finance will adopt a more open stance.
Last week, Dunamu, the operator of South Korea's largest cryptocurrency exchange Upbit, launched a new custodial service for corporate and institutional clients, as the regulatory green light for virtual asset investment has sparked a growing demand for secure storage solutions.
The service stores all deposited digital assets in cold wallets, completely offline and protected from internet-based threats, to safeguard the held assets from cyberattacks and other external violations.
