South Korea’s FSC Orders Temporary Halt to Crypto Lending Services

The South Korean Financial Services Commission (FSC) has ordered local cryptocurrency exchanges to suspend their lending services until new regulatory guidelines are put in place.

On August 19, the FSC announced through a translated press release that it had issued official notices to domestic crypto exchanges, instructing them to halt all lending operations effective immediately. The regulator explained that crypto lending remains in a “legal gray zone,” which could expose users to significant risks and financial losses.

Crypto lending is still a relatively recent addition to South Korea’s digital asset market. Launched earlier this year by leading exchanges such as Upbit and Bithumb, the service allowed customers to borrow either Korean won or digital assets, with the borrowed assets being secured as collateral.

Back in late July, the FSC had already raised concerns over these services, urging exchanges to reassess their lending products. The agency warned that crypto lending could easily be exploited for fraudulent activities and might result in severe investor losses.

Following the regulator’s warning, both Bithumb and Upbit—the two largest South Korean exchanges by trading volume—voluntarily suspended their lending operations last month. However, Bithumb later resumed the service with tighter restrictions in place.

The FSC clarified that this industry-wide suspension is only a temporary measure. The halt will remain in effect until comprehensive rules are introduced to ensure that crypto lending can operate safely and protect consumers from trading-related risks. In the meantime, borrowers will still be allowed to extend loan terms or settle existing contracts. Exchanges that fail to comply with the order, however, may face on-site inspections.

According to the FSC’s release, around 27,600 investors borrowed nearly 1.5 trillion won (approximately $1.1 billion) during the first month of a digital asset firm launching its lending service. Due to price volatility, about 13% of these borrowers were forced into liquidation. The agency did not name the company involved.

The regulator also highlighted how the introduction of USDT lending triggered a surge of sell orders, causing the stablecoin’s price to plunge on local platforms, further destabilizing the market.

This development comes as South Korea adopts a more crypto-friendly stance under President Lee Jae-Myung, who has signaled policies that mirror the United States’ approach during Trump’s administration. Lee has pledged to support Korean won–backed crypto assets and push for the approval of crypto-based ETFs.