South Korea Suspends Crypto Lending Services Pending New Rules

South Korea’s Financial Services Commission (FSC) has ordered local exchanges to suspend crypto lending services until a new regulatory framework is in place. The FSC announced that it has issued administrative guidance to all digital asset exchanges to halt their crypto lending operations starting Tuesday. The regulating body has asked to pause the service until further instructions, as the FSC is preparing official guidelines to stabilize the market and safeguard investors.

South Korea’s FSC Suspends Crypto Lending Services

The suspension comes just weeks after major exchanges launched aggressive lending programs. On July 4, Upbit rolled out a service allowing customers to borrow up to 80% of their Korean won deposits or crypto holdings against assets such as Tether (USDT), Bitcoin (BTC), and XRP. Rival exchange Bithumb went even further, offering loans worth up to four times users’ collateral. Other platforms quickly followed suit.

The moves appeared to be in anticipation of the ruling party’s proposed Digital Asset Basic Act, which could eventually allow regulated lending by exchanges. However, regulators quickly flagged risks. On July 31, the FSC asked platforms to reassess their offerings, warning that crypto lending sits in a legal “gray zone” and carries a high chance of investor losses.

According to FSC data, roughly 27,600 investors borrowed around 1.5 trillion won ($1.1 billion) within a month of one exchange introducing lending. Almost 13% of borrowers had to liquidate their assets after collateral values dropped.

The analysts have noticed that the launch of USDT lending services has caused sudden sell-offs, which have led to an abnormal decline in the stablecoin’s price on the local exchanges. This has increased the concerns of the regulators over market stability.

In its announcement, the FSC said it will prioritize drafting formal rules to regulate crypto lending. The upcoming guidelines are expected to balance investor protection with the integration of leveraged services into South Korea’s digital asset ecosystem.

In the meantime, exchanges will be permitted to extend maturities and accept repayments for existing loans, but new ones may not be issued. The regulator also warned that it would conduct on-site inspections of platforms that ignore its directive.

The suspension highlights South Korea’s delicate balancing act between fostering innovation and mitigating risk. Once seen as one of the most restrictive jurisdictions for digital assets, the country has gradually eased its stance under President Lee Jae Myung. Policymakers are preparing to lift the ban on institutional crypto trading, approve the first domestic spot crypto ETFs, and develop a local stablecoin market pegged to the Korean won. For now, the suspension stops the industry's rapid growth, but the FSC's willingness to write rules shows that regulated crypto lending could soon become a permanent part of South Korea's financial environment.