South Korea’s Financial Services Commission (FSC) released an updated guideline on crypto lending services for centralized trading platforms on September 5. It has placed a 20% cap on annual interest rates and banned all forms of leveraged loans that exceed the value of collateral.
According to a local media report, the updated guideline is a component of the FSC’s larger initiatives to improve user protections and regulate digital assets. Effective immediately, the guidelines also prohibit platforms from offering loan products that must be repaid in fiat currency, declaring such practices as violations of existing credit business laws.
Only platforms using their own capital for lending may operate under the new framework. Moreover, attempts to sidestep regulations through third-party services are strictly barred.
Crypto lending is now restricted to the top 20 cryptocurrencies by market capitalization or those listed on at least three licensed exchanges in South Korea. A token must be completely removed from lending activities if it is marked as “cautionary” by an exchange. This is to reduce investor exposure to high-risk assets.
Additionally, the FSC has implemented user-specific protections, such as loan caps determined on a borrower’s trading history and transaction history. To reduce unexpected losses in erratic market conditions, platforms must give users prompt, explicit warnings if they may be liquidated.
These regulatory steps follow an earlier directive in August that ordered local exchanges, including Upbit and Bithumb, to halt their lending services amid a surge in loosely regulated products. The enforcement actions will now be overseen by the Digital Asset Exchange Alliance (DAXA), the industry’s joint regulatory consultative body.
The FSC said the current guideline is a precursor to formal legislation, which will be drafted based on real-world enforcement outcomes.
Also Read: South Korea Plans Sharing Crypto Transactions Data Globally
