South Korean financial authorities are now collaborating to form a tighter framework for crypto exchanges to operate within— the initiative spurred on due to a lack of investor protection in the digital asset industry, as per a Yonhap News report.
In particular, the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) will be forming a joint task force, which will be preparing a set of rules under the ‘Virtual Asset Lending Service Guidelines’.
The key stakeholders who will play a part in forming the guidelines include DAXA, a group comprising the five largest crypto exchanges in South Korea—Upbit, Bithumb, Coinone, and Gorpax, being four of them.
The ‘Virtual Asset Lending Service Guidelines’ will focus on leverage and its validity, virtual assets allowed for renting, user information, and risk disclaimers. The newly created task force will also look at how other countries handle their regulation, along with an assessment of the stock market’s best practices and the unique position of their domestic virtual asset market.
South Korean exchanges in spotlight for leverage trading and lending
Popular South Korean crypto exchanges currently have a suite of features that encourage leveraged positions and lending using cryptocurrency as collateral.
For instance, Bithumb has a service that allows users to leverage up to 4 times their holdings, allowing for trading positions that are extremely risky. At the same time Upbit released a lending option that gives collateral of up to 80% in the form of deposits or digital assets.
The update in practices comes 2 months after South Korea tightened its regulations for digital assets before institutional entry into the market. The changes were finalized during the fourth Virtual Asset Committee meeting held by the South Korean-based Financial Services Commission.