South Korea's top financial regulator has requested cryptocurrency exchanges to suspend new digital asset lending services, citing increasing risks and emphasizing the need for clear regulatory rules.
The Financial Services Commission (FSC) has sent a letter to exchanges, asking them to halt new cryptocurrency lending services until final guidelines are established. Existing contracts, including repayments and extensions, can still be processed normally.
On July 31, the FSC and the Financial Supervisory Service (FSS) announced the establishment of a joint working group to develop a regulatory framework for cryptocurrency lending. The relevant guidelines will cover leverage limits, user qualifications, and risk disclosures for virtual asset lending activities.
The FSC stated that it will conduct on-site inspections of platforms and take regulatory measures against non-compliant entities.
This action stems from widespread user losses, including reports of thousands of forced liquidations in exchange lending projects.
The FSC noted that an unnamed exchange attracted approximately 27,600 users in a single month after launching lending services in mid-June. The platform's trading volume was about 15 trillion won (approximately 1.1 billion USD). Of these, about 13%, or 3,635 people, faced forced liquidations due to declines in the value of their cryptocurrency positions.
The FSC also pointed out that two companies offering Tether (USDT) lending services led to a surge in selling volume, causing an abnormal drop in USDT prices. The agency stated that if new lending activities continue without protective measures, investors' funds may face further losses.
Since 2020, South Korea has established a basic regulatory framework for Virtual Asset Service Providers (VASPs). This includes anti-money laundering (AML) and travel rule requirements implemented under the revised Act on Reporting and Using Specified Financial Transaction Information.
In 2023, South Korea's Virtual Asset User Protection Act came into effect, providing a legal basis to combat unfair practices such as market manipulation and improper handling of user deposits.
Nevertheless, cryptocurrency lending remains in a legal gray area, lacking a clear regulatory framework and licensing system.
Related: Is the bottom for Bitcoin (BTC) price at $114,700? Data suggests the reversal timing has arrived.
Original: “South Korea Requests Exchanges to Stop Cryptocurrency Lending Services”
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