South Korea’s top financial regulator ordered crypto exchanges to suspend new digital asset lending services, citing rising risks and highlight the need for clear rules.
Financial Services Commission (FSC) Said On Tuesday that it sent letters to exchanges to request the new crypto borrowing suspension, until it meets the guidelines. Existing contracts, such as repayment and maturity extensions, will be allowed.
On 31 July, FSC and Financial Supervisory Services (FSS) announced that they have formed a joint work force to develop a regulatory structure for crypto borrowings. The guidelines are expected to cover the leverage range, user eligibility and risk revelations for virtual asset lending activities.
The FSC said it would conduct an on-site inspection and will take supervisory action against the platforms that failed to comply.
Forced liquidation exposes immediate requirement for clear rules
The step follows the reports of comprehensive user loss report, which includes thousands of forced liquidation in exchange-operated lending programs.
The FSC stated that an unknown exchange attracted about 27,600 users a month of introduction in mid -June. The platform recorded about 1.5 trillion Korean ($ 1.1 billion). Of those users, about 13%, or 3,635 people, faced forcibly liquidation as their crypto status fell into the value.
The FSC also indicated two companies, which offered Titu (USDT) lending services, leading to an increase in volume and unusual declines in USDT prices. The agency said that continuing new lending operations without safety measures can cause further damage to investor funds.
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Crypto is lending a gray area in South Korea
Since 2020, South Korea has prepared a fundamental regulatory base for Virtual Asset Service Providers (VASPS).
This includes anti-mani laundering (AML) and travel rule mandate that use reporting and specified financial transactions.
In 2023, the country’s virtual asset user Protection Act came into force, giving a legal basis for punishment against unfair activities such as manipulation and misunderstanding of user deposits in the market.
Despite these, Crypto Lending remains in a legal gray zone, working without a clear regulatory structure or licensing regime.
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