Financial Services Commission implements virtual asset lending guidelines… restrictions on leverage and fiat lending

The Financial Services Commission has issued guidelines on lending services for virtual asset (cryptocurrency) operators. This was to put in place institutional safeguards as concerns grew over investor harm from overheated competition.

On the 5th, the FSC said, "We will implement guidelines that clarify the scope of virtual asset lending services and include user protection measures and market stabilization rules." This measure is a follow-up after requesting exchanges last month, via administrative guidance, to temporarily suspend lending services and after on-site inspections by the Financial Supervisory Service.

According to the guidelines, leverage services that lend virtual assets beyond the value of collateral and won-converted monetary lending that could violate the Money Lending Business Act are not permitted. Also, only direct lending using an exchange's proprietary assets is recognized, while indirect lending through third-party cooperation or outsourcing is restricted.

Operators must verify whether new users have completed the online education and eligibility test organized by the Digital Asset Exchange Joint Council (DAXA). They are required to set individual lending limits (KRW 30 million–70 million) based on users' trading history and experience. If there is a possibility of forced liquidation during the lending period, prior notice must be given, and additional collateral provision is allowed within the limit.

Fees cannot exceed the annual maximum interest rate of 20% set in credit-provision-related regulations, and exchanges must disclose the lending fee structure, lending status by asset (real-time), forced liquidation status (monthly), etc.

Lendable assets are limited to virtual assets ranked within the top 20 by market capitalization or assets listed on three or more KRW markets. Assets subject to trading advisories or abnormal trading are prohibited from being lent or used as collateral. In addition, internal control mechanisms must be established to prevent excessive price fluctuations caused by concentrated lending demand for specific assets.

The guidelines will be initially implemented as DAXA's self-regulation starting September 5. Financial authorities plan to observe the operation and then legislate the related content to establish a regulatory framework.