- Crypto lending regulations are on the way in South Korea as leveraged loans increase.
- Task force to come up with investor protection and leverage limits.
- Exchanges were called upon to re-evaluate risky lending services on the spot.
Financial regulators in South Korea are taking urgent action to curb the risky lending of cryptocurrencies. At the end of next month, the Financial Services Commission (FSC) and Financial Supervisory Service (FSS) will draw up stringent regulations on virtual asset lending.
Big exchanges like Upbit and Bithumb have caused concerns; thus, this is a reaction to such concerns. Such platforms have recently introduced services through which borrowers can borrow cryptocurrencies at four times the value of their collateral. Regulators fear that the volatile prices may subject the users to devastating losses.
What Sparks the Regulatory Surge?
With Bithumb’s new leveraged lending service, users can borrow up to four times their coin value using only their Korean won or other crypto assets as collateral. Users could deposit Korean won or digital assets into Upbit’s account and borrow up to 80% of Tether, Bitcoin, or Ripple currencies later on.
This hyper-leveraging sounded the alarm to the risk of investors and market stability. The Financial Services Commission emphasized that it is necessary to have a clear regulatory framework to handle these “high risks” presented by highly leveraged crypto lending as soon as possible.
Task Force Forms to Shape Lending Rules
The FSC and FSS formed a task force that works with virtual asset exchanges and the Digital Asset Exchange Joint Council. They want to achieve this by establishing comprehensive guidelines that will protect the investor and impose market discipline.
Areas of the framework that will probably be touched upon include the question of whether leverage must be permitted, whether users are eligible, the nature of the assets permitted, warnings about the risks involved, and disclosure requirements. It will be based on the world’s best practices on regulation by taking lessons from the different major regulations in the overseas markets, and adapting the regulations to the South Korean crypto market situation.
Regulatory bodies also request that the exchanges to reconsider products that could be of legal or financial risk. The guidelines are due in the coming month and will inform the second phase of the virtual asset regulation in South Korea.
South Korea is likely to implement more stringent regulations on crypto loan services in the near future, placing particular emphasis on safety and transparency due to its increasingly proactive stance.
The emphasis on the leverage limits is a vital milestone towards eliminating speculative excesses within the digital asset markets. Investors and exchanges have to be ready to enter a new generation of regulated crypto lending.
