South Korea caps crypto lending at 20% interest, bans leveraged loans

South Korea's Financial Services Commission published a new guideline on crypto lending services for centralized trading platforms on Friday.

"The guideline clearly defines the scope of virtual asset lending services by referring to global cases, providing various user protection measures," the FSC said in its press release.

The new rules prohibit leveraged lending that exceeds the value of collateral, and set an interest rate cap of 20%. They also restrict products that require users to repay with cash instead of crypto, as this is considered a violation of credit business regulations.

Companies offering these services must use their own capital and are prohibited from circumventing the rules through third-party services, the guideline states.

To protect users, the guideline also mandates limits on a user's lending amount based on their experience and transaction history. Additionally, users must be notified in advance if they are at risk of liquidation. 

Limited offerings

The guideline also stipulates that lending services are limited to the top 20 cryptocurrencies by market capitalization, or cryptocurrencies that are traded on three or more licensed local exchanges.

If a cryptocurrency is designated as cautionary by crypto exchanges, lending services for that asset must also be halted.

The FSC said the guideline will be applied starting today, overseen by Digital Asset Exchange Alliance (DAXA), the joint consultative body in compliance with local regulators. The commission plans to legislate the new rules based on implementation results.

The new guideline comes after the FSC ordered local exchanges to suspend their lending operations on Aug. 19, in response to a series of lending service launches by Upbit, Bithumb and other platforms.