South Korea to Issue Crypto Lending Guidelines in August

South Korea’s financial regulators plan to release guidelines on cryptocurrency lending services next month in an effort to tighten oversight and protect investors amid growing concerns over leveraged crypto products.

The Financial Services Commission (FSC) and Financial Supervisory Service (FSS) on Thursday announced the formation of a joint task force to develop a regulatory framework for crypto lending, according to local media Yonhap News Agency (YNA). The move follows new lending services introduced by South Korean exchanges Upbit and Bithumb.

According to YNA, Bithumb has allowed users to borrow as much as four times their collateral, while Upbit has offered loans worth up to 80% of users’ asset value.

The task force appears to be a response to the lack of clear safeguards for investors, raising an alarm over potential losses due to rapid market fluctuations.

South Korea tightens oversight on crypto lending

The task force will reportedly include representatives from the FSC, the FSS and the Digital Asset eXchange Alliance. DAXA is a self-regulatory organization formed by the five major crypto exchanges in South Korea, including Upbit, Bithumb, Coinone, Korbit and Gopax. 

The task force will consider international rules, traditional stock market regulations and the intricacies of the local crypto market to form the crypto lending guidelines.

These guidelines are expected to cover leverage limits, user and asset eligibility, risk disclosures and transparency requirements for lending-related digital asset activities. 

The authorities also asked the exchanges to review high-risk and legally vague services, such as those offering excessive leverage or fiat-based lending services. 

The new rules are expected to form a foundation for future crypto legislation and reflect the government’s broader push to increase accountability in the digital asset space.

Related: South Korean court clears Wemade ex-CEO in Wemix manipulation case

Bank of Korea to launch virtual asset committee

The establishment of the lending task force follows a move from the South Korean central bank to convert its existing central bank digital currency (CBDC) research and development teams into a virtual asset team that covers a wider mandate. 

The Bank of Korea said the Virtual Asset Team will also be tasked with responding to discussions on stablecoins and other crypto assets. It will work with the government during the legislative process. 

The committee’s formation was announced as South Korean bank stocks surged after making stablecoin-related moves.

In June, Google Finance data showed companies like Kakao Bank, Kookmin Bank and the Industrial Bank of Korea surged by 10% to 19% after registering stablecoin trademarks. 

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