Financial Authorities Launch Virtual Asset TF to Establish Lending Service Guidelines

Financial authorities have formed a task force (TF) to establish guidelines for virtual asset lending services.

On July 31, the Financial Services Commission and the Financial Supervisory Service announced that they had formed a TF with market experts, the Digital Asset Exchange Association (DAXA), and virtual asset exchanges to develop the 'Virtual Asset Lending Service Guidelines' (tentative name), and held a kickoff meeting at the Seoul Government Complex.

Recently, virtual asset exchanges have launched 'virtual asset lending services' that allow users to borrow virtual assets using virtual assets or deposits as collateral. The scope of such services is expected to expand in the future.

However, under current laws and regulations such as the Virtual Asset User Protection Act, there is no clear regulatory framework for virtual asset lending services. Unlike other markets such as stocks, there are insufficient institutional measures to protect users. In addition, due to legal uncertainties, virtual asset exchanges find it difficult to provide lending services in a stable manner.

The authorities explained that some services are offering excessive leverage to users. If users lack understanding or information about these services, or if the price of borrowed virtual assets fluctuates sharply contrary to initial expectations, users may incur significant losses. There is a growing demand in the market to establish and operate at least minimum standards for virtual asset lending services, even before the second phase of legislation is completed.

The TF plans to comprehensively consider the regulatory status of major countries overseas, regulatory approaches in related markets such as stocks, and the unique characteristics of the domestic virtual asset market. The goal is to establish a basic regulatory framework for virtual asset lending services that the industry must commonly comply with.

To protect users, the TF will focus on discussing whether leverage should be allowed, suitability principles for users, the scope of eligible users, the range of virtual assets that can be lent, user education and risk disclosure, and disclosure measures for lending status by virtual asset type. In addition, the TF will address internal control standards for virtual asset exchanges and other requirements necessary for service operation.

Financial authorities have requested that virtual asset exchanges re-examine services that pose significant risks of user damage, such as those providing high leverage or monetary lending with legal risks. The guidelines are expected to be announced as early as next month. Based on the content and implementation of the guidelines, the authorities also plan to promptly pursue legal institutionalization of related regulations.