South Korea Halts Crypto Lending Ahead of New Regulations

Quick Highlights FSC suspends new crypto lending, citing investor risk and lack of regulation. Exchanges can maintain existing loans but may not issue new ones. Bithumb saw $1.2B borrowed in a month before 13% faced liquidation. South Korea Orders Crypto Lending Suspension South Korea's Financial Services Commission (FSC) has sent letters to crypto exchanges, demanding they suspend lending against virtual assets, citing regulatory uncertainty and the need to protect consumers. The ban is set to take effect on August 19, 2025. According to the statement, the FSC intends to conduct on-site inspections if non-compliance is suspected. The Commission did not specify what sanctions may be imposed on violators. The regulator's guidance is expected to remain in effect until a clear regulatory framework for the sector is established and implemented. In the release, the Commission expressed concerns about the growing demand for crypto lending and the potential risks of such activities. Activity Surge and Regulatory Response Earlier, local press highlighted the high activity around the credit services offered by the Upbit and Bithumb exchanges. Upbit launched its Coin Borrowing service in July; Bithumb introduced Lending Plus in June. Bithumb saw 27,600 users borrow a total of 1.5 trillion won ($1.2 billion) in just one month. The rush was driven by the exchange merging its previous lending product—available since 2020—with the new program, allowing customers to use up to 4x leverage. After the share of users subject to forced liquidation reached 13%, the authorities intervened. As a result, Upbit and Bithumb reviewed their services. Upbit removed support for USDT, while Bithumb suspended its program. Bithumb later restored lending but reduced the maximum leverage to 2x and lowered the limit to 200 million won ($145,000). ”Considering the amount of funds raised in a short time after launch, investor demand is sufficient. However, the volatility here is much higher than in the stock market, so it is necessary to establish minimum investor protection measures before the full launch,” said Kang Joon-hyun, a member of the House of Representatives. Shortly after, the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) announced the creation of a joint working group to develop a regulatory framework for crypto lending. This will cover 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. A draft regulatory framework for the sector is expected in the coming months.