South Korea Tightens Rules on Crypto Lending Platforms

South Korea’s Financial Services Commission (FSC) has introduced new regulations governing crypto lending services offered by centralized exchanges.

The framework, unveiled Friday, aims to increase investor protection while aligning the local market with global standards.
According to the FSC, the rules are designed to clearly outline what qualifies as a virtual asset lending service. By referencing international practices, regulators hope to strike a balance between innovation and safety in a sector often criticized for high risk.

Caps on Rates and Collateral Requirements

One of the biggest changes is a ban on leveraged loans that exceed the value of posted collateral. Interest rates will also be capped at 20%, preventing lenders from charging excessively high fees. Another restriction targets hybrid products that demand cash repayments rather than cryptocurrency, which officials consider a violation of South Korea’s credit business laws.

Stricter Oversight for Service Providers

The guideline further stipulates that lending platforms must rely on their own capital and cannot bypass regulations through partnerships with third-party providers. This move aims to prevent firms from shifting risk outside the regulated system.
Stronger Safeguards for Users

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For borrowers, the FSC is enforcing tailored lending limits based on a user’s trading experience and history. Exchanges are also required to warn customers in advance if their positions approach liquidation thresholds, a step meant to give individuals time to respond before losses occur.

By tightening oversight, South Korea is signaling that it wants a more disciplined digital asset market. The changes highlight a broader trend: regulators worldwide are seeking to curb excessive risk in crypto lending while protecting users from sudden financial shocks.