Financial watchdogs in South Korea are intervening after two major cryptocurrency exchanges,
$2.25B
Upbit, began offering new features related to lending and trading. These features have prompted concerns about legal compliance and the protection of investors.
A report published on July 30 by Korea JoongAng Daily indicates that the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) convened a meeting on July 25 with representatives from the five largest crypto exchanges in the nation to address these issues.
On July 4th, Bithumb launched a new service allowing users to borrow funds equivalent to up to four times the value of their existing cryptocurrency holdings. This service supports trading in ten different digital currencies, including Bitcoin
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Upbit has implemented a similar feature, although it is limited to XRP
These new offerings have sparked concern from regulatory bodies, as they mirror high-risk strategies that are heavily regulated in conventional financial markets.
Following discussions with the regulators, Upbit has chosen to temporarily halt its Tether lending service. The company stated that it will re-evaluate the service to ensure adherence to Korean regulations, which classify specific lending products as regulated financial activities.
Bithumb subsequently made adjustments to its system but decided to maintain the four-times borrowing limit.
Regulators are particularly worried that these products enable activities like short-selling and other forms of high-risk trading without providing adequate safeguards for users.
They also emphasized that, in the absence of specific legal guidelines, lending services secured by digital assets might be subject to current regulations governing loan services, which mandate licenses and stricter regulatory oversight.
In related news, the Bank of Korea (BOK) has recently established a dedicated Virtual Asset Team. What responsibilities will this team undertake? Find out more here.
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