New Crypto Lending Rules in South Korea
South Korea’s Financial Services Commission (FSC) has introduced new regulations regarding crypto lending.
On Friday, the FSC announced that the interest rate on crypto lending is now limited to 20% within South Korea, and that leveraged lending is prohibited. Lending activities will be confined to the top 20 tokens based on market capitalization or those listed on a minimum of three won-based exchanges.
These new guidelines come in response to reports from late July indicating that South Korea’s financial regulators intended to establish rules for cryptocurrency lending services to enhance oversight and safeguard investors. This step also follows the introduction of leveraged lending services by domestic crypto exchanges.
The FSC clarified that the revision of these rules was initiated based on a request from financial services due to the absence of regulations governing lending activities. Furthermore, exchanges are now required to ensure that first-time borrowers have successfully completed online training and suitability assessments dictated by the local self-regulatory body, the Digital Asset eXchange Alliance (DAXA).
In cases of forced liquidations, users must receive prior notification, and they must be allowed to add funds to their positions to avert liquidation. Lastly, exchanges are mandated to utilize their own capital when providing lending services:
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“The new regulations reflect South Korea’s increasingly critical stance toward crypto. Lee Eok-won, the nominee for chairman of the FSC, recently made critical remarks about cryptocurrency, noting that ‘crypto has extreme price volatility, lacks monetary function’ and has ‘no intrinsic value.’”
Reports from late July suggest that the level of scrutiny is set to rise. At that time, South Korea’s central bank was reported to be forming a virtual asset committee aimed at monitoring the crypto market.
Despite this, the interest in crypto is rapidly increasing in South Korea.
A recent report revealed that affluent families and family offices across Asia are boosting their cryptocurrency investments, with some considering allocating approximately 5% of their portfolios to this asset class. Data from the end of March indicated that the number of crypto exchange users in South Korea has surpassed 16 million, following a notable increase in users after the election of pro-crypto President Donald Trump in the US.
This user base represents over 30% of South Korea’s total population. Nonetheless, some analysts argue that this surge reflects the financial desperation among local youth in search of easy earnings, rather than a genuine enthusiasm for the technology.
In late June, Eli Ilha Yune, chief product officer at quantum machine learning startup Anzaetek, suggested that the “motive comes not from […] a belief in Web3 […] like in the West.” He asserted that the adoption of cryptocurrency in South Korea stems from the financial challenges faced by the younger generation.
