South Korea Tightens Grip on Leveraged Crypto Lending
South Korea to Regulate Leveraged Crypto Loans
Financial regulators in South Korea are moving swiftly to control the risks associated with cryptocurrency lending. The Financial Services Commission (FSC) and Financial Supervisory Service (FSS) are preparing comprehensive regulations on virtual asset lending, expected to be finalized by the end of next month.
- New crypto lending regulations are coming to South Korea.
- A task force will focus on investor protection and setting leverage limits.
- Exchanges are urged to reassess risky lending services immediately.
Why the Regulatory Push?
The urgency follows the introduction of high-leverage services by major exchanges like Upbit and Bithumb. These platforms allow users to borrow cryptocurrencies at up to four times the value of their collateral. Regulators are concerned that the volatile nature of crypto assets could lead to significant losses for users.
For example, Bithumb's new service enables users to borrow up to four times their coin value using Korean won or other crypto assets as collateral. Similarly, Upbit allows users to deposit Korean won or digital assets and borrow up to 80% of Tether, Bitcoin, or Ripple currencies.
The FSC has emphasized the need for a clear regulatory framework to address the high risks associated with such leveraged crypto lending.
Task Force Developing New Rules
The FSC and FSS have established a task force, collaborating with virtual asset exchanges and the Digital Asset Exchange Joint Council, to develop guidelines that protect investors and enforce market discipline.
Key areas under consideration include:
- Whether leverage should be permitted at all
- User eligibility criteria
- Acceptable collateral types
- Risk disclosures
- Transparency requirements
These guidelines will be based on global best practices, adapted to the specific conditions of the South Korean crypto market. Regulatory bodies are also requesting exchanges to re-evaluate products that may pose legal or financial risks.
The new guidelines, expected soon, will inform the second phase of virtual asset regulation in South Korea.
South Korea's proactive stance suggests a future with more stringent regulations on crypto loan services, with a strong emphasis on safety and transparency. These leverage limits mark a critical step towards reducing speculative excesses in the digital asset markets. Investors and exchanges should prepare for a new era of regulated crypto lending.
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