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South Korea Implements Strict Caps on Crypto Lending Amidst Investor Protection Measures

South Korea's Financial Services Commission (FSC) has introduced new guidelines to regulate crypto lending, capping interest rates at 20% annually.

These measures, named the "Virtual Asset Lending Guidelines," ban leveraged loans that exceed the value of collateral and take effect immediately.

This decision stems from concerns regarding excessive competition among exchanges leading to potential investor harm, following a significant surge in crypto lending since July.

For instance, platforms like Upbit and Bithumb were previously allowing borrowers to use up to 80% and 400% of their assets, respectively, as collateral before the regulations took shape.

Recent inspections highlighted that about 27,600 investors had borrowed around 1.1 billion USD in just one month, with a notable percentage facing forced liquidation due to volatile market conditions.

Exchanges are now mandated to limit lending to the top 20 cryptocurrencies, while also ensuring proper user protections, including mandatory training for first-time borrowers.

Importantly, all loans must be disclosed publicly, providing transparency about loan statuses and instances of forced liquidation.

In conjunction with these lending regulations, South Korea has begun aligning its regulatory framework with the OECD’s Crypto-Asset Reporting Framework, effective in 2027.

This enhanced oversight aims to combat tax evasion and increase transparency in transactions involving local exchanges.

As South Korea continues to navigate the complexities of the crypto landscape, it remains focused on protecting its investors while promoting future market stability.