South Korea Introduces Stricter Regulations on Crypto Lending
The South Korea Financial Services Commission (FSC) has announced new guidelines that cap the interest on crypto loans at 20% annually and prohibit over-collateralized loans. This move is aimed at protecting investors from potential harm caused by excessive competition among exchanges.
According to a local report, the new self-regulatory framework has come into effect immediately, in response to concerns about the damage to investors through overheated exchange competition. The FSC, in collaboration with the Financial Supervisory Service and the Digital Asset Exchange Association, developed the “Guidelines for Virtual Asset Lending” to address these concerns.
A Response to Market Overheating Concerns
The guidelines define three core pillars: service scope restrictions, enhanced user protection, and market stability measures. The regulatory intervention follows the dramatic growth of crypto credit services since July, with exchanges such as Upbit and Bithumb offering loans with high loan-to-value ratios.
The tax authorities had previously ordered the temporary suspension of all crypto credit services on August 18 due to concerns about regulatory gray areas. Inspections revealed that around 27,600 investors had borrowed 1.5 trillion WON (1.1 billion USD) in one month alone, with 13% exposed to forced liquidation due to market volatility.
Seoul Slams the Brakes on Risky Lending
The new guidelines impose comprehensive restrictions on virtual asset lending processes. Leveraged loans that exceed the collateral value are completely prohibited, while Korean cash credit services are fully prohibited. Expenses are only allowed to use their own assets for credit transactions.
Programs of third-party providers or collaborative lending agreements are also strictly prohibited as part of the framework. This eliminates indirect credit models that were previously operated through external partnerships or delegated structures.
The loans are limited to the top 20 cryptocurrencies by market capitalization or assets listed on three or more Korean winning exchanges. Assets subject to trade restrictions or suspected abnormal trade activity are excluded from credit programs.
Regulators Play Global Catch-Up Game
The suspension order of August 18 was preceded by extensive on-site inspections, which were conducted from August 26 to September 2. The Financial Supervisory Service rated user protection measures and formed task forces with DAXA and relevant organizations to develop global best practices.
The procedure takes place in addition to wider regulatory developments. South Korea officially referred to the framework for the OECD crypto-asset report and called for the exchange of sharing transaction data from 2027 with the tax authorities.
The domestic exchange, including Upbit and Bithumb, must report personal information and transaction data for residents of partner countries next year. The Ministry of Economic and Finance Ministry plans to issue administrative known buildings this month, which describe Carf sub-implementation regulations.
For more information on this development, visit https://cryptonews.com/news/south-korea-caps-crypto-lending-at-20-interest-bans-over-collateralized-loans/
