- South Korea’s Financial Services Commission (FSC) has ordered all local crypto exchanges to suspend the launch of new lending services.
- The ban is in response to rising investor risks, citing high volatility and a recent case where a surge in liquidations at the exchange Bithumb led to significant losses for users.
- This move comes as the country’s government is in the process of creating a new Digital Asset Basic Act, which will provide a clear legal framework for crypto lending and other services.
South Korea’s Financial Services Commission (FSC) hit the brakes on all crypto exchanges, ordering each to freeze the launch of new lending products until a regulatory framework is complete.
Existing loans can continue, but any attempt to expand services will trigger inspections and enforcement.
Too Much Volatility, Says FSC
The regulator cited rising risks to investors and market stability. Likewise, the order follows turbulence at Bithumb, where more than 27,000 users accessed lending products in June, according to a local report. Roughly 13% were liquidated after collateral values dropped, the kind of volatility regulators say must be addressed before wider adoption.
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South Korea has introduced multiple layers of crypto regulation since 2020, including AML and Travel Rule compliance requirements for virtual asset service providers and, more recently, the 2023 Virtual Asset User Protection Act targeting deposit misuse and market manipulation. But crypto lending has remained outside the legal perimeter, operating without licensing or explicit oversight until now.
The country elected a pro-crypto president (or that’s what it looks like, for now), a few months ago: Lee Jae-myung, who represents the Democratic Party. Lee’s government is now moving forward with several pro-crypto initiatives, including the legalisation of domestic stablecoins.
Besides volatility, the FSC also cited recent cases involving two firms offering Tether (USDT) lending services, which led to a surge in sell orders and an abnormal dip in USDT’s price.
All in all, the agency warned that allowing further expansion of lending products without safeguards risked amplifying investor losses.
It looks like this behaviour is catching up worldwide, as the SEC, the US top regulator, also hit the brakes on several crypto institutions, but this time regarding the revision and approval of several cryptocurrency exchange-traded funds (ETFs) and other special modifications, such as in-kind redemptions and staking integration for ETH ETFs.
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