- The one-exchange-one-bank model is not a legal requirement but is widely followed.
- A government study found the setup limits access for small crypto exchanges.
- Large platforms dominate Korean won-based trading due to better liquidity.
South Korea’s top regulators are reportedly reviewing how local cryptocurrency exchanges work with banks, aiming to create a more balanced playing field.
The current system often links each crypto exchange to just one bank, limiting choice and creating high entry barriers for smaller firms.
Though this setup isn’t officially required by law, it has become widespread due to anti-money laundering and identity verification rules.
The Financial Services Commission and the Fair Trade Commission are now coordinating a review to see whether this long-standing practice is stifling competition and reinforcing the dominance of a few large exchanges.
Rules may favour bigger exchanges
Under the existing system, exchanges need to form exclusive partnerships with domestic banks to allow customers to deposit and withdraw Korean won.
Without that link, they can’t offer basic fiat services.
The model emerged in response to growing demands for transparency and risk control, but may now be working against smaller market participants.
A recent study commissioned by the government explored how current crypto regulations impact competition.
According to findings reported by local outlet Herald Economy, researchers concluded that the one-to-one exchange-bank setup makes it harder for newer or smaller exchanges to access banking services.
Even though it helps manage financial risks, applying the same strict standards across the board may be excessive when firms vary in size, volume, and risk profile.
The study also noted that most Korean won-based crypto trading happens on just a few large platforms, making the market highly concentrated.
Liquidity gap highlights entry barriers
The research pointed out that when a few platforms dominate trading volume, they benefit from deeper liquidity and faster transactions.
This creates a cycle where users are more likely to choose the bigger players, further limiting the reach of smaller exchanges.
As long as banking access remains difficult, that pattern is unlikely to change.
This concentration may make the market less dynamic, reduce innovation, and restrict consumer options.
As a result, the current setup could be reinforcing the position of already-powerful exchanges, rather than encouraging healthy competition.
Lawmakers delay key digital asset bill
The review of crypto-banking links comes alongside delays in broader legislative changes.
The Digital Asset Basic Act, which is expected to reshape the country’s crypto regulation, was initially scheduled for submission before the end of 2023.
However, on December 31, lawmakers pushed it back to 2026.
The bill proposes allowing the launch of stablecoins backed by the Korean won, as long as the issuing companies store their reserve assets with approved custodians such as banks.
The delay stems from disagreements over how to supervise stablecoin issuers and whether a new oversight body should pre-approve them.
The Financial Services Commission is also weighing how to allow both financial and non-financial firms to take part in this sector without compromising on safety.
The goal is to support innovation while maintaining strong regulatory safeguards.
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