- The one-exchange-one-bank model is not legally mandated, but it is widely adopted.
- Government research indicates this setup restricts access for smaller cryptocurrency exchanges.
- Major platforms dominate won-denominated trading because they offer superior liquidity.
South Korea’s main regulators are reportedly reassessing the close ties between local cryptocurrency exchanges and banks, with the aim of fostering a more balanced competitive environment.
Under the current system, many crypto exchanges pair exclusively with a single bank, limiting options and raising barriers to entry for smaller firms.
Although not formally required by law, this arrangement has become widespread due to anti-money laundering and customer identification requirements.
The Financial Services Commission and the Fair Trade Commission are coordinating a review to determine whether this long-standing practice suppresses competition and reinforces the dominance of a few large exchanges.
Rules may favor larger exchanges
In the existing framework, an exchange typically needs an exclusive partnership with a domestic bank to offer customers won deposits and withdrawals.
Without such a banking relationship, an exchange cannot provide basic fiat services.
While the one-to-one bank model emerged in response to demands for greater transparency and risk management, it can disproportionately disadvantage smaller market participants.
A government-commissioned study examined how current cryptocurrency regulations affect competition in the sector.
According to coverage by the local Herald Economy, researchers concluded that the one-to-one exchange structure makes it difficult for newly established or smaller exchanges to access banking services.
Although strict standards help manage financial risk, applying identical, rigid criteria to firms with different sizes and risk profiles may be excessive in some cases.
The study also noted that won-denominated crypto trading is concentrated on a handful of leading platforms, indicating a highly centralized market.
Liquidity gap highlights entry barriers
Researchers found that when a few platforms dominate trading volume, they benefit from deeper liquidity and faster execution.
This concentration encourages users to favor larger players, further limiting the reach of smaller exchanges.
As long as access to banking services remains difficult for newcomers, this dynamic is likely to persist.
Such concentration can reduce market dynamism, stifle innovation, and restrict consumer choice.
Consequently, the current arrangement may not promote healthy competition and could instead strengthen the positions of already powerful exchanges.
Lawmakers postpone key digital assets bill
The review of crypto-bank linkages comes as broader legislative reforms face delays.
The proposed Basic Digital Asset Act, expected to reshape the country’s crypto rules, was initially slated for submission by the end of 2023.
However, lawmakers postponed the bill to 2026.
The legislation would allow the issuance of won-backed stablecoins, provided issuers hold reserve assets with approved custodians such as banks.
The delay stems from disagreements over how to supervise stablecoin issuers and whether a new supervisory body should grant pre-approval.
The Financial Services Commission is considering approaches that would allow both financial and non-financial firms to participate in the sector while preserving safety.
The stated goal is to support innovation while maintaining robust regulatory protections.