South Korea temporarily halts crypto lending on domestic platforms due to safety worries
In an effort to enhance investor protection and promote transparency in the domestic virtual asset market, a task force has been formed by the Financial Services Commission, Financial Supervisory Service, Digital Asset Exchange Joint Council (DAXA), and five domestic virtual asset exchanges.
The task force, which held its first meeting earlier this month, aims to create a foundational regulatory framework for virtual asset lending services. This move comes in response to concerns over insufficient investor protections in the offerings recently launched by leading domestic exchanges Upbit and Bithumb.
Upbit, a major player in the South Korean crypto market, introduced a crypto lending service that enables users to borrow up to 80% of selected cryptocurrencies, including Tether, Bitcoin, and Ripple. On August 4, Bithumb followed suit, launching a crypto lending service that allows users to borrow up to four times the value of their assets using digital coins or Korean won as collateral.
The task force will consider international regulatory standards, stock market oversight practices, and the distinct features of South Korea's domestic crypto market when creating the regulatory framework. The guidelines will address aspects such as permissible leverage, eligible users and assets, user education, risk notifications, suitability principles, and reporting requirements for lending activity by asset type.
In addition, the guidelines will encompass internal control standards that exchanges must maintain to operate additional services safely. Financial authorities are asking virtual asset exchanges to review high-risk services, including those offering leverage or involving crypto lending, which could carry legal liabilities.
The new guidelines could set a global precedent, signaling South Korea's commitment to balancing innovation with investor protection in the crypto sector. The concern is that users of these crypto lending services could face substantial losses if the value of the borrowed virtual assets experiences sharp fluctuations.
The task force's collaborative effort follows a period of increased scrutiny on the crypto market, particularly in light of the rapid growth and potential risks associated with virtual asset lending services. The guidelines, once finalized next month, are expected to be incorporated into the second phase of virtual asset legislation.
However, the search results do not contain information about which Virtual Asset-Lending platforms are involved in the development of these new regulations by South Korean financial authorities. As the task force continues its work, it is hoped that a comprehensive and effective regulatory framework will be established to safeguard investors and foster a healthy and competitive virtual asset market in South Korea.
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