anjir abdul
South Korea’s financial regulatory bodies are currently undertaking a comprehensive review of a long-established operational model within its cryptocurrency market, which effectively mandates a singular banking partner for each virtual asset exchange. This critical examination, coordinated between the Financial Services Commission (FSC) and the Fair Trade Commission (FTC), forms part of a broader governmental effort to assess and potentially recalibrate market competition within the nation’s burgeoning crypto sector. The initiative, first brought to light by local media outlet the Herald Economy citing government officials privy to inter-agency discussions, seeks to determine whether existing practices inadvertently contribute to an unhealthy concentration of market power and stifle innovation.
For years, the "one exchange–one bank" model has been a defining characteristic of South Korea’s crypto landscape. While not explicitly codified in national law, this de facto standard emerged as a direct consequence of stringent Anti-Money Laundering (AML) and customer due diligence (CDD) requirements. Following a period of rapid, often unregulated, growth in the crypto market, particularly around 2017-2018, Korean authorities intensified their oversight. Banks, facing increasing pressure to mitigate financial crime risks associated with virtual assets, became the gatekeepers for fiat on- and off-ramps. To manage their own compliance burdens and reputational risks, domestic banks typically opted for exclusive partnerships, ensuring a more contained and manageable risk exposure with a single, vetted exchange. This arrangement meant that for an exchange to operate legally and allow users to deposit or withdraw Korean Won, it had to secure and maintain an exclusive agreement with a local commercial bank to provide real-name verified accounts.
This practice, while seemingly prudent for compliance, has inadvertently shaped the market into a highly concentrated structure. The current review is largely catalyzed by the findings of a government-commissioned research project. This study, tasked with analyzing the virtual asset trading market and the competitive impact of key regulations in South Korea, delved deep into the industry’s architecture. Its primary objective was to evaluate how the existing regulatory framework, including the unique banking model, influences competition among domestic exchanges.
The report, portions of which were reportedly obtained by the Herald Economy, delivered a stark conclusion: the exchange-bank pairing model significantly reinforces market concentration. It acts as a formidable barrier to entry for newer or smaller exchanges, which often struggle immensely to secure banking partnerships. Established players, frequently dubbed the "Big Four" – Upbit, Bithumb, Coinone, and Korbit – have long-standing relationships with major commercial banks, solidifying their dominant positions. Upbit, for instance, partners with K Bank, while Bithumb relies on NH Nonghyup Bank. This exclusive access to real-name bank accounts grants them an insurmountable advantage, as users can only trade with fiat currency on exchanges that possess such partnerships. Without a banking partner, an exchange is relegated to operating solely with crypto-to-crypto pairs, severely limiting its appeal to the broader market and new investors.
The study further elaborated that while the model aims to manage compliance risk effectively, applying uniform, stringent standards to exchanges with vastly different risk profiles, transaction volumes, and operational scales may be disproportionate and inefficient. It highlighted that the Korean Won-based crypto market remains exceptionally concentrated around a handful of large platforms. In such environments, the research found, liquidity and transaction efficiency naturally gravitate towards these dominant players, creating a self-reinforcing cycle that entrenches incumbents and stifles the growth of potential competitors. New entrants, even with innovative technologies or business models, face an uphill battle to gain market share when access to the fundamental fiat gateway is so restricted. This not only limits consumer choice but also potentially slows down innovation within the domestic crypto ecosystem.
The involvement of both the FSC and the FTC underscores the seriousness and multifaceted nature of this review. The Financial Services Commission is the country’s primary financial regulator, responsible for overseeing financial institutions, including banks, and regulating virtual asset service providers (VASPs) under the Act on Reporting and Using Specified Financial Transaction Information. Its mandate focuses on financial stability, investor protection, and market integrity. The Fair Trade Commission, on the other hand, is the nation’s antitrust authority, tasked with promoting competition and preventing monopolies or unfair trade practices. Its involvement signals that the government views the concentrated crypto market not just as a financial risk management issue but also as a potential anti-competitive concern. This inter-agency coordination suggests a holistic approach, aiming to balance the imperative of financial stability and AML compliance with the equally important goal of fostering a competitive, innovative, and fair market environment.
This reported review unfolds against the backdrop of South Korea’s broader legislative efforts to establish a comprehensive regulatory framework for digital assets, commonly known as the Digital Asset Basic Act (DABA). DABA is envisioned as a foundational law that will bring clarity and structure to various aspects of the crypto industry. The initial phase of DABA, primarily focusing on investor protection and unfair trading practices, has already seen progress. However, the second phase, which delves into more complex areas such as stablecoin issuance, initial coin offerings (ICOs), and non-fungible tokens (NFTs), has encountered delays. Lawmakers recently postponed the submission of the second phase of the bill to 2026, largely due to unresolved disagreements surrounding the supervision of domestic stablecoin issuers.
The debate surrounding stablecoins is particularly relevant to the banking model review. The proposed legislation, championed by President Yoon Suk-yeol (not Lee Jae-myung as mentioned in the original text, which might be a typo, Lee Jae-myung was a presidential candidate), aims to permit the issuance of Won-pegged stablecoins while mandating that issuers entrust reserve assets to authorized custodians, such as banks. The core contention revolves around whether a dedicated oversight body should pre-approve stablecoin issuers and, crucially, whether non-financial technology companies should be allowed to issue stablecoins, or if this privilege should be reserved primarily for traditional financial institutions like banks. The FSC is actively examining how to strike a delicate balance between robust oversight, ensuring financial stability, and creating a framework that encourages participation and innovation from a broader range of entities beyond just established banks. The outcome of this stablecoin debate could significantly influence the future role of banks in the crypto ecosystem and, by extension, impact the feasibility of modifying the "one exchange–one bank" model. If non-financial entities are allowed to issue stablecoins, it might necessitate new banking relationships or a re-evaluation of how fiat-backed digital assets interact with the traditional financial system.
Globally, other major jurisdictions have adopted varied approaches to the relationship between crypto exchanges and banks. In some regions, a more open banking model or the emergence of crypto-friendly banks has allowed for greater flexibility. For instance, in the European Union, the Markets in Crypto-Assets (MiCA) regulation aims to harmonize rules across member states, potentially leading to more consistent banking access for exchanges. Countries like Japan have specific licensing regimes that require robust internal controls, but not necessarily a one-to-one banking partnership. South Korea’s review provides an opportunity to draw lessons from international best practices, exploring alternative models that could enhance competition without compromising essential AML/CTF (Combating the Financing of Terrorism) objectives.
Looking ahead, the potential outcomes of this review are significant for the trajectory of South Korea’s crypto market. Regulators might consider various reforms, such as allowing exchanges to partner with multiple banks, establishing clearer guidelines for banks to engage with a wider array of exchanges, or even exploring the creation of specialized crypto banking services. However, implementing such changes will not be without challenges. Banks may be reluctant to take on increased perceived risk, and concerns about systemic stability will need careful navigation. The ultimate goal is likely to foster a more dynamic and equitable market that encourages innovation, offers greater choice to consumers, and maintains a high standard of regulatory compliance.
In conclusion, South Korea’s deep dive into its "one exchange–one bank" crypto model signals a mature regulatory approach that seeks to balance financial stability and investor protection with market fairness and innovation. The coordinated efforts of the FSC and FTC, coupled with insights from the government’s competition study, indicate a strong commitment to addressing the structural issues that have led to market concentration. As the nation prepares for the full implementation of its Digital Asset Basic Act, the decisions made regarding banking partnerships for exchanges will undoubtedly play a pivotal role in shaping the future competitiveness and global standing of South Korea’s digital asset ecosystem. The outcome of this review holds the potential to unlock new growth avenues, foster a more vibrant industry, and ultimately redefine the landscape of crypto trading in one of Asia’s most significant markets.
