Crypto Leverage Under Fire: South Korea Set to Tighten Lending Rules

South Korean financial regulators are preparing new guidelines to address cryptocurrency lending services, particularly those offering high leverage to retail investors. The initiative, announced on Thursday, comes amid growing concerns about investor protection and potential risks tied to volatile market conditions.

According to reports from Yonhap News Agency (YNA), the Financial Services Commission (FSC) and Financial Supervisory Service (FSS) have established a joint task force to develop a regulatory framework targeting crypto lending practices.

The move follows recent offerings by major domestic exchanges, such as Bithumb and Upbit, which introduced high-risk lending options allowing users to borrow significant amounts relative to their collateral.

Joint Task Force to Draft New Lending Guidelines

The task force will include members from the FSC, FSS, and the Digital Asset eXchange Alliance (DAXA), a self-regulatory body composed of five leading South Korean exchanges: Upbit, Bithumb, Coinone, Korbit, and Gopax.

The primary goal of the group is to establish clear rules governing leveraged lending products, which have recently seen increased adoption without standardized investor safeguards.

As noted in YNA’s report, Bithumb has allowed users to borrow up to four times their deposited collateral, while Upbit provided loans amounting to 80% of users’ asset values.

Regulators fear that such high leverage could expose retail investors to rapid and severe losses during market swings. The forthcoming guidelines are expected to address leverage limits, asset and user eligibility criteria, mandatory risk disclosures, and enhanced transparency for digital asset lending activities.

The regulators have also urged crypto exchanges to proactively review services that pose high risk or lack legal clarity. This includes offerings with excessive leverage and those enabling fiat-based lending, which may fall into regulatory grey areas.

According to the FSC, the goal is to create a structured approach that can serve as a foundation for broader digital asset legislation in the future.

Part of a Broader Push for Crypto Oversight

The establishment of the lending task force aligns with South Korea’s wider efforts to strengthen oversight in the digital asset sector.

Earlier this year, the Bank of Korea announced the formation of a Virtual Asset Team by integrating its central bank digital currency (CBDC) research division with a broader mandate to monitor stablecoins and other crypto-related developments.

The team will collaborate with government agencies during the upcoming legislative process for cryptocurrencies. Global regulators have also been paying closer attention to crypto lending following high-profile collapses of platforms like Celsius and BlockFi in 2022, which left many investors facing significant losses.

South Korea’s proposed rules aim to prevent similar events by setting clearer boundaries on lending practices within the country’s growing digital asset market.

The draft guidelines are expected to be released next month, with industry stakeholders anticipating stricter requirements on how crypto exchanges manage leveraged lending services.

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