South Korea's Financial Regulator Halts New Crypto Lending Services Amid Investor Risks

South Korea's Financial Services Commission (FSC) has directed domestic cryptocurrency exchanges to suspend the rollout of new digital asset lending products, citing mounting risks to investors and a lack of clear regulatory guidelines. Existing agreements, including repayment schedules and contract extensions, will not be affected.

The move comes after a surge of forced liquidations in exchange-run lending programs, which resulted in significant user losses. The FSC revealed that one platform attracted more than 27,000 users in a single month, with roughly 13% facing forced liquidations amounting to thousands of cases. The regulator also flagged lending activity involving Tether, which contributed to unusual price fluctuations in the stablecoin market.

The FSC and the Financial Supervisory Service (FSS) have formed a joint task force to draft rules for the sector, which are expected to include leverage caps, investor eligibility criteria, and mandatory risk disclosures. In the meantime, the FSC has warned that it will conduct inspections and impose supervisory actions on firms that fail to comply with the directive.

Crypto lending has been operating in a regulatory gray area in South Korea, despite broader virtual asset regulations covering anti-money laundering, the Travel Rule, and investor protection. The FSC stated that continuing new lending services without safeguards could expose users to further harm.