- Regulators in South Korea review the informal one exchange–one bank model, assessing its effect on competition and banking access for smaller exchanges.
- A government study says the won market clusters around a few large platforms, with uniform AML standards weighing more on new entrants and limiting growth.
- Lawmakers delay the Digital Asset Basic Act to 2026, debating won-pegged stablecoins, bank custody of reserves, and whether issuers need pre-approval.
South Korea is reassessing how its crypto trading sector connects to the banking system, in a move that could reshape competition and access in one of the world’s most active digital asset markets. Financial regulators have started to review the long-standing practice under which each licensed cryptocurrency exchange works with a single banking partner, a structure that grew out of compliance demands rather than explicit law. As this review unfolds alongside work on the Digital Asset Basic Act, domestic exchanges, banks, and stablecoin issuers face a period of uncertainty and potential regulatory change.
South Korea reviews the one exchange–one bank crypto model
Financial authorities in South Korea, led by the Financial Services Commission, began coordinated talks with the Fair Trade Commission over how the crypto-banking relationship affects market structure. Local outlet Herald Economy reported that officials from both agencies are taking part in inter-agency discussions which focus on whether the current model contributes to excessive concentration in the virtual asset trading market. Their concern is not based on a specific statute that sets a “one exchange–one bank” rule, because such a rule does not exist in written law. Instead, this arrangement grew in practice as banks applied Anti-Money Laundering requirements and strict customer due diligence standards to crypto clients. Over time, exchanges in South Korea came to rely on exclusive partnerships with individual domestic banks to offer fiat deposits and withdrawals to users. Under these arrangements, a bank provides real-name accounts and handles know-your-customer checks, while the exchange manages crypto trading and custody. The system allowed regulators to assign AML responsibilities clearly and to monitor on- and off-ramps for the Korean won. Yet it also created an environment where banks grew cautious about onboarding multiple platforms, especially smaller or newer ones that they perceived as riskier from a compliance standpoint. As a result, only a handful of exchanges secured full-fledged fiat access, while others either operated with limited services or focused on crypto-to-crypto trading. South Korea now questions whether this outcome reflects genuine market forces or structural barriers shaped by cautious banking behavior and informal regulatory expectations. The review seeks to understand to what extent current practices restrict competition, reduce consumer choice, and limit innovation, while still recognizing that banks and regulators need tools to manage illicit finance risks in a complex sector.
Competition concerns in South Korea’s virtual asset trading market
The latest policy discussions come on the heels of a government-commissioned research project analyzing how regulation shapes competition among crypto platforms in South Korea. According to the Herald Economy, the report examined the structure of the virtual asset trading market, with particular focus on the won-based segment that dominates domestic activity. Researchers looked at the effect of the exchange-bank pairing model and concluded that it may reinforce concentration by limiting access to banking channels for smaller exchanges that want to grow. In their analysis, the authors argued that standardizing compliance demands across all exchanges, regardless of size or risk profile, can be disproportionate and may impose higher relative costs on new entrants. Banks often prefer to work with one or two large platforms that handle high volumes and can invest heavily in security and monitoring systems. This approach might reduce perceived risk for banks, but it also means that many potential competitors cannot secure the same quality of fiat services even if they comply with basic regulatory requirements. Over time, such a pattern can lock in early leaders and make it difficult for new trading venues to gain traction. The study highlighted that the Korean won-based crypto market remains heavily concentrated around a small group of major exchanges, which benefit from deeper liquidity, tighter spreads, and faster order execution. In markets like South Korea, where liquidity attracts more traders, these advantages can snowball. Higher liquidity leads to better prices and more efficient transactions, which in turn draw additional users away from smaller platforms that cannot match those conditions. When barriers to entry remain high, including challenges in securing banking partners, incumbents can strengthen their position without necessarily offering the best service across every metric. Researchers also drew links between this structure and broader competition law concerns. They indicated that when a regulatory environment indirectly encourages exclusive vertical relationships between exchanges and banks, authorities must examine whether such arrangements unintentionally hinder fair market access. This is why the Fair Trade Commission now participates in the review process, not only the financial supervisors. The outcome could include guidance that encourages banks to consider more exchanges, a shift toward multi-bank models, or new standards that tailor compliance to different risk categories rather than forcing all platforms into the same mold.
South Korea and the Digital Asset Basic Act second phase
This reassessment of exchange-bank ties unfolds as South Korea prepares the second phase of its Digital Asset Basic Act, a broader legislative package that aims to update the country’s approach to crypto and tokenized assets. Lawmakers initially planned to submit the bill sooner, but on December 31 they delayed formal submission until 2026 due to unresolved disagreements over how to supervise domestic issuers of stablecoins. The delay does not signal abandonment; instead, it reflects the complexity of designing a framework that covers trading venues, custodians, and issuers across both financial and technology sectors. The proposed legislation, which has backing from President Lee Jae-myung, would allow the issuance of won-pegged stablecoins under a set of strict reserve and custody rules. Under the draft approach, issuers must hold reserves and entrust those assets to authorized custodians such as licensed banks. This design aims to ensure that each unit of a won-denominated stablecoin is fully backed by safe, readily verifiable holdings, while also giving regulators a clear view into the reserve management practices. By requiring bank custodians, policymakers in South Korea hope to avoid the opaque reserve issues that have appeared in some offshore stablecoin projects. However, lawmakers and regulators remain divided over whether a dedicated oversight body should pre-approve any entity that wishes to issue such stablecoins. One view holds that strong ex-ante approval reduces the risk of fraud, mismanagement, or systemic disruptions and aligns issuers with existing financial institutions. Another position argues that overly strict pre-approval could shut out non-financial technology companies that have the capacity to build robust payment and settlement solutions. The FSC is reviewing how to balance oversight with an open framework that allows a range of qualified firms to participate, not only traditional banks or securities houses. These debates tie back into the competition issues around exchanges and banks. If South Korea centralizes too much power in a small circle of large financial institutions, it risks replicating the same concentration problems in the stablecoin segment that it now sees in the exchange market. On the other hand, loosening rules too far could undermine consumer protection, especially in a country where retail investors play a significant role in crypto adoption. The Digital Asset Basic Act therefore sits at the crossroads of financial stability, innovation policy, and fair competition, and its final shape will influence how the local ecosystem develops through the second half of the decade.
Broader implications for banks, exchanges, and users in South Korea
The review of the one exchange–one bank model and the progress of the Digital Asset Basic Act together suggest a transition phase for the crypto industry in South Korea. Banks may need to rethink their approach to risk assessment for virtual asset clients, shifting from blanket reluctance to more nuanced, case-by-case evaluations. Regulators could encourage this shift by clarifying how institutions can satisfy AML and customer due diligence standards while still engaging with a broader set of platforms. If more exchanges gain access to high-quality fiat services, users in South Korea might see greater choice, fee competition, and differentiated product offerings. For established exchanges, any change to the current system could alter their competitive edge. Those that built strong positions under the exclusive partnership framework might face new rivals that can finally secure banking relationships and attract liquidity. They may respond by improving user experience, expanding product lines within regulatory boundaries, or forming additional partnerships with financial institutions. Meanwhile, smaller exchanges will watch closely for signals that the banking gate may open wider, since access to real-name accounts and smooth deposits in Korean won remains essential for capturing mainstream traders. Stablecoin issuers and fintech firms also stand to be affected. If South Korea finalizes a clear path for won-pegged tokens with bank-held reserves, new payment services and settlement tools could emerge that bridge traditional finance and on-chain activity. Retail and corporate users might then move between bank accounts and tokenized won with fewer frictions, provided the regulatory framework supports interoperability and protects consumers. At the same time, stricter requirements for custody and oversight could raise entry costs, meaning only well-capitalized or well-regulated players will participate in this field. For users, the outcome of these processes will shape the safety and diversity of crypto access points. A more open banking environment, tied to strong AML controls, could reduce reliance on offshore platforms or informal channels that expose traders to higher risks. Clear rules for stablecoins backed by domestic banks might also give individuals and businesses more confidence when using tokenized instruments in payments or savings. South Korea thus stands at a policy juncture where decisions taken over the next two years, including the lead-up to the 2026 bill submission, will determine whether its crypto market remains concentrated or moves toward a more balanced, competitive landscape.
Conclusion
South Korea is entering a decisive period for its crypto regulation as financial and competition authorities reconsider the informal one exchange–one bank structure and study how it affects a won-dominated trading market that clusters around a few large platforms. A government-backed report found that this practice may reinforce concentration by limiting banking access for smaller exchanges, even though it grew out of legitimate AML and due diligence concerns. At the same time, lawmakers delayed the submission of the Digital Asset Basic Act to 2026 due to disputes over the supervision of won-pegged stablecoin issuers, including whether a specialized body should pre-approve participants and how far to open the field to non-financial technology companies. Together, these reviews will shape how exchanges, banks, and issuers share responsibilities and opportunities, and they will define the level of competition and user protection in South Korea’s virtual asset sector for years to come.
Disclaimer
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