South Korea Boosts Investor Safety with New Crypto Lending Restrictions

South Korea’s financial regulators are moving decisively to curb risks in the burgeoning digital asset lending market. The Financial Services Commission (FSC) has unveiled a stringent new framework for centralized crypto exchanges, aiming to bolster investor protection and align the domestic market with evolving global regulatory benchmarks. This latest initiative, announced on September 5, 2025, defines virtual asset lending services with greater clarity, seeking to balance innovation with critical security measures in a sector often associated with heightened volatility.

• The Financial Services Commission (FSC) unveiled new regulations on September 5, 2025.
• Leverage loans are explicitly prohibited if they exceed the value of the provided collateral.
• Interest rates for digital asset loans are capped at a maximum of 20%.
• Hybrid lending products that demand loan repayment in fiat currency for crypto loans are now banned.
• The framework aims to enhance investor protection and align the domestic market with global regulatory standards.

Key Lending Restrictions Introduced

The new regulations introduce several significant restrictions designed to mitigate speculative practices and protect consumers from excessive risk exposure. Notably, the framework explicitly prohibits leverage loans that exceed the value of the provided collateral. Furthermore, the FSC has capped interest rates at a maximum of 20%, a measure intended to prevent predatory lending practices and exorbitant fees. Another key limitation targets hybrid lending products, which demand loan repayment in fiat currency rather than the original cryptocurrency, a practice the authorities deem a violation of South Korea’s existing credit services law.

Strengthening Oversight and Investor Safeguards

Beyond direct lending product limitations, the guidelines impose stricter operational requirements on lending platforms. These platforms are now mandated to rely on their own capital and are explicitly prohibited from circumventing regulations through partnerships with third parties. This provision aims to prevent the transfer of risk outside the regulated system and ensure greater accountability within the industry. For borrowers, the FSC has introduced personalized lending limits that will be determined by each user’s experience and trading history, adding a layer of tailored risk management. Additionally, exchanges will be obligated to issue advance warnings to clients whose positions approach liquidation thresholds, providing crucial time for users to react and mitigate potential losses.

These comprehensive changes underscore South Korea’s commitment to fostering a more disciplined and secure digital asset market. The new rules are part of a broader global trend, where financial regulators worldwide are intensifying their scrutiny of crypto lending activities. This concerted effort seeks to curtail excessive risk-taking and shield consumers from sudden financial shocks, ultimately promoting greater stability and trust within the evolving digital finance landscape.