In a significant development for the cryptocurrency landscape, South Korea is contemplating a reevaluation of its banking relationships with cryptocurrency exchanges. This move could mark a pivotal change in how these exchanges access financial services, especially in light of concerns about market competition.
Historically, a system known as the “one exchange–one bank” model has governed these relationships, where each major exchange partners exclusively with a single bank. While this arrangement was initially established to mitigate risks associated with anti-money laundering and customer verification, it has evolved into a standard practice that many argue limits competition within the sector.
Currently, most major cryptocurrency exchanges depend on these exclusive banking partnerships for handling deposits and withdrawals in Korean won. The absence of diverse banking options effectively sidelines smaller exchanges, restricting their ability to operate in the mainstream market despite potential demand for their services.
Local reports indicate that the Financial Services Commission and the Fair Trade Commission are collaborating to examine whether this banking model has skewed market dynamics. Their investigation is not focused on the trading of cryptocurrencies per se, but rather on the implications of banking access as a potential gatekeeper favoring established entities.
The renewed scrutiny appears to have been prompted by a government-funded research project that assessed how regulatory frameworks influence competition in the virtual asset sector. The findings reportedly indicate that the exclusive partnerships with banks create significant barriers for new or smaller exchanges trying to enter the market.
The study also noted a recurring trend in financial markets: liquidity tends to concentrate around a limited number of platforms. This phenomenon grants dominant exchanges advantages such as deeper order books and faster transaction execution, making it increasingly difficult for challengers to compete effectively.
Furthermore, the report raises questions about the appropriateness of applying uniform regulatory standards across all exchanges. It suggests that such one-size-fits-all regulations may disproportionately burden smaller platforms that operate with lower transaction volumes.
While there are no immediate policy changes on the horizon, this review signals a potential shift in regulatory attitudes. Authorities seem more inclined to examine how current regulations affect market structure and long-term competition, rather than solely focusing on financial crime risks.
This ongoing debate coincides with the legislative process for South Korea”s upcoming Digital Asset Basic Act, which has faced delays and discussions over stablecoin regulations. The proposed legislation aims to regulate won-pegged stablecoins, with stipulations regarding the oversight of reserve assets by approved custodians such as banks.
As these discussions unfold, it appears that South Korea is reassessing its approach to controlling access to its cryptocurrency market. Should regulators conclude that the existing banking model entrenches established players, changes to the relationships between exchanges and banks could reshape one of the world”s most active cryptocurrency trading environments.
