South Korea Implements New Crypto Lending Regulations
South Korea’s Financial Services Commission (FSC) announced new regulations on crypto lending designed to tighten oversight and protect investors. Effective immediately, interest rates on crypto loans are capped at 20%, and leveraged lending is prohibited.
Restrictions on Tokens and Borrowers
The FSC limits crypto lending to the top 20 cryptocurrencies by market capitalization or those listed on at least three won-based exchanges. Additionally, exchanges are required to ensure that first-time borrowers complete online training and suitability tests administered by the local self-regulatory organization, the Digital Asset eXchange Alliance (DAXA).
Enhanced Transparency and Lending Practices
New rules mandate that users must be notified in advance of any forced liquidations, with the option to add capital to their positions to prevent liquidation. Furthermore, exchanges are required to use their own capital to provide lending services, banning indirect lending through third-party collaborations or outsourcing. This measure aims to prevent regulatory evasion.
Context and Regulatory Environment
The FSC’s move follows reports from late July indicating plans to introduce stricter guidelines for cryptocurrency lending services amid growing concerns over investor risks and the introduction of leveraged lending by local exchanges. The regulatory review was initiated at the request of financial services entities due to the absence of prior comprehensive regulations governing crypto lending.
Lee Eok-won, nominee for FSC chairman, has expressed a critical stance on cryptocurrencies, highlighting their extreme price volatility, lack of monetary function, and absence of intrinsic value. Concurrently, the Bank of Korea is reportedly forming a virtual asset committee to enhance market monitoring.
Growing Crypto Adoption Despite Regulatory Caution
Despite increasing regulatory scrutiny, cryptocurrency adoption in South Korea continues to rise rapidly. Recent data indicates over 16 million crypto exchange users in the country, representing more than 30% of the population. This surge partly stems from financial challenges faced by younger generations, who may view crypto as an alternative avenue for financial gain rather than a technological innovation.
Some analysts suggest that the primary driver behind South Korea’s crypto market growth is financial desperation among youth rather than belief in blockchain technology or Web3 principles.
