South Korea to regulate crypto lending services, aiming to reduce risks from high leverage and protect inexperienced investors in volatile markets.
South Korea is preparing to regulate high-risk crypto lending services to improve investor protection and reduce the potential damage from leveraged products. This action follows the recent introduction of controversial lending services by the biggest local crypto exchanges. Monetary regulators in the nation are currently collaborating with the digital asset sector to come up with the appropriate regulations and precautions.
South Korea Forms Task Force on Crypto Lending Rules
The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) announced on July 31 that they have established a joint task force. These are the representatives of the Seoul Government, Digital Asset Exchange Association (DAXA), and five significant exchanges, such as Upbit and Bithumb. The task force met for the first time and started the work on the creation of official rules governing crypto lending and renting services, according to a local news outlet, Yonhap News Agency.
The move comes amidst the rising concerns after Bithumb and Upbit both announced crypto lending services earlier this month. The offered service of Bithumb permits the user to lend his/her deposit multiplied by four in cryptocurrency or Korean won. On the same day, Upbit implemented an analogous functionality to allow customers to borrow money up to 80 percent of the deposits secured by Bitcoin, Ripple, or Tether. These high-leverage services were issued without much investor protection, and this brought about concerns of market instability and consumer losses.
The regulators in South Korea are currently concerned about how they can ensure that the users are not incurring massive losses in a volatile market. The task force plans to examine crypto regulations in other major countries and take lessons from the traditional stock market’s risk management systems. The objective is to create a coherent framework that reflects the reality of the digital assets climate in South Korea without endangering users.
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Crypto Lending Rules to Protect Korean Investors
The upcoming rules will explain who can use these services. They will also set limits on how much leverage exchanges can offer and which assets they can use. In addition, regulators want exchanges to improve transparency by reporting the status of borrowed loans regularly. They also expect exchanges to educate users about the risks of taking loans in unstable markets. These steps aim to reduce losses among new investors. Moreover, the guidelines will require exchanges to strengthen their internal controls before launching such services.
Meanwhile, the financial regulators have requested the exchanges to rethink the idea of offering highly risky or legally questionable products, particularly those permitting high levels of borrowing. This careful step shows growing fear about crypto lending. Regulators believe the fast growth of crypto loans can harm the financial system. They want to control it before it causes serious problems.
The new regulations are likely to be concluded and presented in the coming month. They will fall under the second phase of the greater crypto legislation plan of South Korea. With these measures, the government aims to strike a balance between innovation and safety, where the crypto industry can develop and still have investor protection as the key focus.
