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South Korea Caps Crypto Lending at 20% Interest, Bans Over-Collateralized Loans

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The South Korea Financial Services Commission (FSC) has applied complete pointers capping crypto lending curiosity at 20% yearly whereas fully banning leverage companies that exceed collateral worth.

According to a local report, the brand new self-regulatory framework takes impact instantly following considerations over investor harm from overheated exchange competition.

The Financial Services Commission introduced the “Virtual Asset Lending Guidelines” in the present day, September 5, developed with the Financial Supervisory Service and Digital Asset Exchange Association.

A Response to the Market Overheating Concerns

The pointers set up three core pillars: service scope restrictions, enhanced consumer safety, and market stability measures.

The regulatory intervention follows dramatic development in crypto lending companies since July.

Upbit launched applications that permit customers to borrow as much as 80% of their deposit values, utilizing Tether, Bitcoin, and XRP as collateral.

Rival Bithumb supplied loans value as much as 4 instances buyer holdings earlier than authorities intervened.

Financial authorities beforehand ordered the temporary suspension of all crypto lending services on August 18 as a consequence of considerations about regulatory grey areas.

Subsequent inspections revealed that roughly 27,600 traders borrowed 1.5 trillion received ($1.1 billion) in a single month alone, with 13% going through compelled liquidation as a consequence of market volatility.

Seoul Slams the Brakes on Risky Lending

The new pointers impose sweeping restrictions on digital asset lending operations.

Particularly, leveraged lending exceeding collateral worth is totally prohibited, whereas Korean received money lending companies are totally banned. Exchanges should make the most of solely their very own property for lending operations.

Third-party consignment or collaborative lending preparations are additionally strictly prohibited below the framework.

This eliminates oblique lending fashions that beforehand operated by way of exterior partnerships or delegated constructions.

Lending eligibility is restricted to the highest 20 cryptocurrencies by market capitalization or property listed on three or extra Korean received exchanges.

Assets topic to buying and selling restrictions or suspected irregular buying and selling exercise face exclusion from lending applications.

Notably, among the many applied consumer safety measures are obligatory on-line coaching and aptitude assessments for first-time debtors by way of DAXA-sponsored applications.

Lending limits vary from 30 million to 70 million received primarily based on particular person buying and selling expertise and transaction historical past.

The 20% annual fee fee cap applies throughout all lending merchandise, whereas exchanges should publicly disclose mortgage standing by product and compelled liquidation situations.

Similarly, inner management mechanisms have to be applied to stop extreme value fluctuations from concentrated positions in particular property.

Market influence concerns information asset choice for lending applications below the steadiness framework.

Regulators Play Global Catch-Up Game

The August 18 suspension order preceded complete on-site inspections performed from August 26 to September 2.

The Financial Supervisory Service assessed consumer safety measures whereas forming activity forces with DAXA and related organizations to develop world greatest practices.

The crackdown happens alongside broader regulatory developments. South Korea officially joined the OECD’s Crypto-Asset Reporting Framework, requiring exchanges to share transaction knowledge with tax authorities beginning in 2027.

Domestic exchanges, together with Upbit and Bithumb, should report private info and transaction knowledge for residents of companion nations starting subsequent 12 months.

The Ministry of Economy and Finance plans to problem administrative notices this month detailing CARF implementation laws.

The framework goals to stop offshore tax evasion whereas rising transparency by way of automated info change methods.

As a results of bettering laws, Binance CEO Richard Teng has scheduled a visit next week, aiming to debate regulatory cooperation as authorities put together for spot crypto ETF approvals and develop Korean won-pegged stablecoin frameworks.

This comes because the change obtained its second Certificate of Appreciation from the Korean National Police Agency for its efforts in cybercrime prevention.

While adoption is rising throughout verticals, FSC chairman nominee Lee Eok-won faces criticism for investing in MicroStrategy shares whereas sustaining that crypto has “no intrinsic worth.”

The FSC chairman nominee affirmation listening to revealed investments in US shares, together with MicroStrategy, drawing criticism from lawmakers selling home market development.

The criticism intensified as a consequence of his perception that Bitcoin lacked intrinsic worth, regardless of the worldwide pattern of company adoption.

Looking ahead, President Lee Jae-myung’s administration is predicted to proceed creating crypto laws, together with the continued Korean won-pegged stablecoin frameworks, regardless of present restrictions on lending companies.

The publish South Korea Caps Crypto Lending at 20% Interest, Bans Over-Collateralized Loans appeared first on Cryptonews.

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