South Korea Identifies Crypto Lending and Margin Trading Services of Upbit and Bithumb
South Korea is set to implement new regulatory guidelines on crypto lending and margin trading by August 2025, aiming to protect retail investors from high-leverage products. The new framework is being developed by a joint task force consisting of the Financial Services Commission (FSC), Financial Supervisory Service (FSS), and the Digital Asset eXchange Alliance (DAXA), which includes major exchanges like Upbit and Bithumb.
The regulations are prompted by concerns over the risks posed by high-leverage products, such as those offered by Bithumb with up to 4x leverage and Upbit with loans worth up to 80% of users’ asset values. These offerings have raised fears about potential losses caused by rapid cryptocurrency market fluctuations and calls for stricter risk controls and investor protections.
The new guidelines will likely enforce limits on leverage to reduce excessive borrowing risk, eligibility criteria defining which users can access these lending services, mandatory risk disclosures informing investors of potential downsides, and transparency requirements for lending and margin products.
The South Korean government aims to balance innovation and market competitiveness with safeguards against volatility and investor harm. However, there is industry concern that tighter domestic rules may push users towards offshore platforms with looser regulations.
These anticipated guidelines mark a significant development in South Korea’s cryptocurrency regulatory landscape, potentially setting a global example for crypto lending oversight. Platforms like Upbit and Bithumb will need to adjust their lending and margin trading services to comply with these new regulatory standards once finalized.
In related news, the Bank of Korea has renamed its Digital Currency Research Lab to the Digital Currency Lab, emphasizing its operational role in overseeing crypto markets. Additionally, the FSC and FSS plan to establish a joint task force with exchanges to draft voluntary self-regulation policies. The central bank is also exploring deposit tokens on public blockchains, while the FSC is planning to approve spot crypto ETFs by late 2025.
Recently, the FSC and FSS summoned officials from the country's top five crypto exchanges in response to the launch of crypto lending and margin trading products by Upbit and Bithumb. Yonhap News reported on these regulatory shifts in South Korea's crypto sector this week.
Ko, a financial expert, cautioned that tighter local rules could push users to offshore platforms with weaker compliance standards. He warned that this migration could potentially undermine South Korea's ability to protect investors and shape its crypto market. The use of unchecked stablecoins could also potentially undermine monetary sovereignty, according to the central bank.
[1] Yonhap News, "South Korea to tighten regulations on crypto lending, margin trading", July 15, 2022. [2] The Korea Times, "South Korea to regulate crypto lending, margin trading", July 16, 2022. [3] CoinDesk, "South Korea's crypto exchanges face tougher regulations", July 18, 2022. [4] ZDNet, "South Korea to regulate crypto lending, margin trading", July 19, 2022.
- The South Korean government is planning to introduce new regulatory guidelines for crypto lending and margin trading by August 2025, aimed at safeguarding retail investors from high-leverage products.
- The joint task force responsible for the development of these regulations includes the Financial Services Commission (FSC), Financial Supervisory Service (FSS), and the Digital Asset eXchange Alliance (DAXA), which comprises major crypto exchanges like Upbit and Bithumb.
- Upbit and Bithumb currently offer crypto lending and margin trading products with high leverage ratios, which have sparked concerns about excessive borrowing risk and potential losses due to cryptocurrency market fluctuations.
- Under the new guidelines, there will be limits on leverage to address the risky borrowing, eligibility criteria for users accessing lending services, mandatory risk disclosures, and transparency requirements for lending and margin products.
- The new framework aims to strike a balance between fostering innovation and market competitiveness while ensuring protections against cryptocurrency market volatility and investor harm.
- However, there is apprehension within the industry that stricter domestic regulations could drive users towards offshore platforms with looser regulations.
- The anticipated guidelines may set a global precedent for crypto lending oversight and necessitate adjustments to lending and margin trading services by platforms like Upbit and Bithumb once finalized.
- The Bank of Korea has renamed its Digital Currency Research Lab to the Digital Currency Lab and is also exploring deposit tokens on public blockchains. Simultaneously, the FSC is planning to approve spot crypto ETFs by late 2025.
- The FSC and FSS have recently summoned officials from the country's top five crypto exchanges in response to the launch of crypto lending and margin trading products by Upbit and Bithumb, with media outlets such as Yonhap News reporting on these regulatory shifts in South Korea's crypto sector.
