South Korea's Financial Services Commission (FSC) has announced a suspension of new crypto lending in the country, citing the need to protect consumers.
Suspension of New Loans
The FSC sent letters to crypto exchanges demanding that they suspend lending against virtual assets. The ban will take effect on August 19, 2025. The Commission indicated its intention to conduct on-site inspections if non-compliance is suspected, though it did not specify what penalties may be enforced against violators.
Surge in Activity and Regulatory Response
Local media reported a significant increase in activity around credit services offered by Upbit and Bithumb. Bithumb saw 27,600 users borrow a total of 1.5 trillion won ($1.2 billion) in a single month, driven by a new product that allowed customers to use up to 4x leverage. After the share of users subject to forced liquidation reached 13%, authorities intervened, leading to Upbit removing USDT support and Bithumb suspending its lending program.
Formation of Regulatory Working Group
The FSC and the Financial Supervisory Service (FSS) have announced the establishment of a joint working group to develop a regulatory framework for crypto lending. This framework will address maximum permitted leverage, risk disclosure requirements, and investor qualifications. According to the Commission's recommendations, service providers may continue servicing existing loans but may not issue new ones.
The suspension of crypto lending in South Korea aims to protect investors from high risks in a volatile market, while regulatory norms are still being developed.
