South Korea’s top financial regulator has ordered local cryptocurrency exchanges to suspend new digital asset lending services, citing growing risks to investors and the lack of clear rules.
The Financial Services Commission (FSC) confirmed on Tuesday that it had sent letters to exchanges, asking them to stop offering new crypto lending products until official guidelines are ready. Ongoing contracts, such as repayments and maturity extensions, will be allowed to continue.
Task force working on new rules
On 31 July, the FSC and the Financial Supervisory Service (FSS) announced the launch of a joint task force to prepare a regulatory framework for virtual asset lending. The new guidelines are expected to cover areas such as leverage limits, user eligibility, and mandatory risk disclosures.
The FSC also warned that it would carry out on-site inspections and could take action against platforms that fail to comply.
Related: South Korea Enforces New Crypto Regulations
Heavy losses from lending services
The decision comes after reports of heavy investor losses linked to exchange-run lending programmes. One unnamed exchange attracted around 27,600 users within a month of launching its lending service in June. Trading volume reached about 1.5 trillion Korean won ($1.1 billion). However, about 13% of its customers – more than 3,600 users – faced forced liquidations when the value of their crypto holdings dropped.
The regulator also raised concerns about two companies that had offered lending services involving Tether (USDT). These products led to a spike in selling activity and an unusual fall in USDT prices, according to the FSC.
Protecting investors
The FSC said that continuing new lending operations without proper safeguards could cause further harm to investors. The regulator stressed that its upcoming rules are aimed at reducing risks in the fast-growing crypto lending sector.
