The best financial regulator in South Korea has ordered crypto exchanges to suspend new digital asset loan services, citing growing risks and highlighting the need for clear rules.
The Financial Services Commission (FSC) said on Tuesday that it had sent letters to the scholarships requesting the suspension of new cryptographic loans until it finishes the guidelines. Existing contracts, such as reimbursements and maturity extensions, will be authorized.
On July 31, the FSC and the Financial Supervisory Service (FSS) announced that they had trained a joint working group to develop a regulatory framework for cryptographic loans. The guidelines should cover leverage, user eligibility and risk disclosure for virtual asset loan activities.
The FSC said it would make inspections on site and would take supervision measures against platforms that do not comply.
Forced liquidations highlight the urgent need for clear rules
This decision follows generalized user loss reports, including thousands of forced liquidations in stock market loan programs.
An unidentified exchange attracted around 27,600 users in a month after launching a loan service in mid-June, said the FSC. The platform recorded around 1.5 Billion of Korean won ($ 1.1 billion) in volume. Among these users, around 13%, or 3,635 people, suffered forced liquidations because their cryptographic positions fell.
The FSC also underlined two companies which offered TETH (USDT) loan services, which sparked an increase in volume sale and an unusual drop in the USDT prices. The agency said that the continuation of new loan operations without guarantees could further affect investor funds.
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Crypto lending a gray area in South Korea
Since 2020, South Korea has laid fundamental regulatory bases for virtual asset service providers (VASP).
This includes money-breaches (LMA) and travel mandates under the revised law on the declaration and use of information on specified financial transactions.
In 2023, the User Protection Act of Virtual Assets in the country has entered into force, creating a legal basis for penalties against unfair activities such as market manipulation and mismanagement of user deposits.
Despite this, cryptographic loans remained in a legal gray area, operating without clear regulatory frameworks or license regime.
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