South Korea’s Push for Fairer Crypto Market Regulations
South Korea is making headlines as its top regulators, the Financial Services Commission (FSC) and the Fair Trade Commission (FTC), examine the nation’s existing relationship between cryptocurrency exchanges and banks. The primary goal? To create a more balanced market environment for all players, big and small. Currently, many smaller exchanges face significant entry barriers due to the one-exchange-one-bank model that dominates the market.
The Current Crypto Banking System: A Double-Edged Sword
Under South Korea’s prevailing framework, cryptocurrency exchanges need an exclusive partnership with domestic banks to offer fiat services such as deposits and withdrawals in Korean won. While this system promotes transparency and reduces financial risk, it also disproportionately benefits large crypto platforms by granting them improved liquidity and market dominance.
Smaller exchanges, in contrast, struggle to secure these bank partnerships, leaving them at a competitive disadvantage. This model, although not legally mandated, emerged from stricter regulations designed to enforce anti-money laundering (AML) compliance and enhance identity verification processes.
Study Highlights Structural Challenges
A recent government-commissioned study published by Herald Economy revealed that the one-to-one exchange-bank setup stifles competition. Most Korean won-based trade happens on just a handful of large platforms, consolidating market power and fueling a self-reinforcing cycle of dominance. Traders are more likely to choose these platforms for their deeper liquidity and faster transaction speeds, leaving newer or smaller exchanges unable to thrive.
The researchers also noted that imposing uniform standards across all exchanges might be overly restrictive, given the varying sizes, trading volumes, and risk profiles of these entities. This excessive rigidity not only limits innovation but also curtails options for consumers and startups.
Delays in Broader Regulatory Frameworks
While South Korea’s review of crypto-banking links is ongoing, larger legislative reforms such as the Digital Asset Basic Act have faced significant delays. Initially expected by the end of 2023, the bill has now been postponed until 2026. This delay stems from disagreements over stablecoin regulation and whether a dedicated oversight body should pre-approve issuances. Despite these hurdles, the framework aims to support technological innovation while maintaining regulatory safeguards.
The Way Forward
As South Korea explores ways to open up banking access to smaller firms, the ultimate goal is a competitive and fair crypto market. Allowing more exchanges to partner with multiple banks could significantly boost market dynamism and consumer choice. However, achieving this balance will require navigating complex trade-offs between transparency, risk management, and fostering innovation.
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Stay tuned for updates on South Korea’s evolving cryptocurrency ecosystem and its potential impacts on global markets.
