South Korea Halts New Crypto Lending to Mitigate Investor Risks

South Korea’s financial authorities have issued a directive halting the launch of new cryptocurrency lending services to address growing concerns over investor risks and market stability. The Financial Services Commission (FSC), in collaboration with the Financial Supervisory Service (FSS), has mandated major exchanges—including Upbit, Bithumb, and Coinone—to stop offering new lending products until a comprehensive regulatory framework is in place [2]. This move aims to tackle the opaque and high-risk nature of leveraged crypto lending, which has raised red flags among regulators [1].

The immediate effect of the suspension is that new lending products, particularly those involving major cryptocurrencies like Bitcoin and Ethereum, are now off-limits. While existing lending products remain operational for now, exchanges are being required to review them for compliance with investor protection standards [2]. The FSC has emphasized that the current regulatory environment lacks clarity, with many lending services operating in a legal gray area [1]. This has contributed to a lack of transparency and potentially increased the risk of significant financial losses for retail investors.

The decision follows a broader pattern of regulatory tightening in South Korea’s crypto sector. Similar measures were introduced in 2023 to restrict anonymous trading accounts, underscoring the government’s ongoing efforts to enhance market oversight and investor confidence [4]. Analysts suggest that the move reflects a strategic attempt to align with global regulatory trends while ensuring that South Korea’s rapidly expanding crypto market remains stable and secure [5].

Industry responses have been mixed, but many exchanges are already adjusting to the new reality. Some have reported that lending supply has been depleted, prompting them to halt new applications voluntarily. The FSC’s intervention is seen as a timely and necessary step to prevent systemic risks and to provide clarity in a sector prone to volatility [3]. The regulatory focus on investor safety may also lead to more stringent requirements for transparency and risk disclosure in future lending services.

While institutional investors continue to explore opportunities in crypto custody services, retail investors face heightened restrictions. This differentiation highlights a growing regulatory preference for structured risk management and controlled access to crypto assets. As the government works to finalize its guidelines, the market will be watching closely for signs of a balanced approach that supports innovation without compromising investor protection [5].

Source:

[1] South Korea Bans New Crypto Lending Products to Curb ... (https://www.ainvest.com/news/south-korea-bans-crypto-lending-products-curb-financial-risks-2508/)

[2] South Korea orders exchanges to halt crypto lending ... (https://www.coinlive.com/en/news-flash/873914)

[3] Korea's financial watchdog expresses concern over crypto ... (http://www.msn.com/en-us/money/markets/koreas-financial-watchdog-expresses-concern-over-crypto-lending-and-margin-trading-services/ar-AA1Jz5S0?apiversion=v2&batchservertelemetry=1&domshim=1&noservercache=1&noservertelemetry=1&renderwebcomponents=1&wcseo=1)

[4] Upbit Hits 100 Institutional Clients in Crypto Custody Push (https://www.ainvest.com/news/upbit-hits-100-institutional-clients-crypto-custody-push-2508/)

[5] Injective Introduces Market for Nvidia GPU Rentals (https://m.economictimes.com/crypto-news-today-live-18-aug-2025/liveblog/123350562.cms)