South Korea’s financial regulator is reviewing the long-standing practice of effectively tying each cryptocurrency exchange to a single banking partner as part of a broader investigation into competition in the country’s cryptocurrency market, according to local media.
Review efforts are being coordinated between the Financial Services Commission (FSC) and the Fair Trade Commission as policymakers assess whether existing practices are contributing to market concentration, business newspaper Herald Economy reported, citing government officials familiar with the discussions between the agencies.
Although the “one exchange and one bank” model is not explicitly codified in Korean law, anti-money laundering (AML) and customer due diligence requirements have led to the emergence of this model in practice.
As a result, crypto exchanges have typically relied on exclusive partnerships with domestic banks to provide fiat on- and off-ramps to their customers.
Competitive research raises concerns about market structure
The policy discussion reportedly followed a government-commissioned research project that analyzed South Korea’s virtual asset trading market and the impact of key regulations on competition.
This study investigated the structure of the virtual currency market and assessed how existing regulations may impact competition among domestic exchanges.
The report, obtained by the Herald Economy, reportedly concludes that a combined exchange-bank model could increase market concentration by restricting banking access for emerging or smaller exchanges.
While the model is intended to manage compliance risk, the study found that applying uniform standards to exchanges with different risk profiles and amounts of risk may be disproportionate.
The researchers highlighted that the South Korean won-based cryptocurrency market remains highly concentrated in a few large platforms.
In such markets, liquidity and trading efficiency tend to favor dominant players, and if barriers to entry persist, they can lock in incumbents, the study reports.
Related: South Korea uncovers $100 million underground money transfer ring using virtual currency WeChat: Report
South Korea preparing digital asset basic law
The reported review comes as regulators prepare the second phase of South Korea’s encryption bill, commonly referred to as the Digital Asset Basic Act.
On December 31, lawmakers delayed introducing the bill until 2026 as disagreements over how domestic stablecoin issuers should be supervised remain unresolved.
The bill, supported by President Lee Jae-myung, would allow Wonpeg to issue stablecoins, but would require issuers to entrust their reserve assets to authorized custodians such as banks.
The debate centers on whether a dedicated regulator should pre-approve issuers, with the FSC considering how to balance oversight with a framework that allows participation by non-financial technology companies.
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