- The one-exchange, one-bank model is not legally mandated but is widely followed.
- A government study found the arrangement limits access for smaller crypto exchanges.
- Large platforms dominate won-based trading in South Korea because they offer better liquidity.
South Korea’s top regulators are reportedly reviewing how local cryptocurrency exchanges partner with banks, aiming to create a more level playing field.
Under the current practice, many crypto exchanges are linked to a single bank, which restricts options and raises entry barriers for smaller firms.
Although this setup is not explicitly required by law, it has become common as a response to anti-money-laundering rules and identity-verification requirements.
The Financial Services Commission and the Fair Trade Commission are coordinating a review to determine whether this longstanding practice stifles competition and strengthens the dominance of a few large exchanges.
Rules may favor larger exchanges
In the existing system, exchanges form exclusive partnerships with domestic banks so customers can deposit and withdraw South Korean won.
Without that banking link, exchanges cannot offer basic fiat services.
The model emerged to meet growing demands for transparency and risk control, but it can now work against smaller market participants.
A recent government-commissioned study examined how current crypto regulations affect competition.
Researchers found that the one-to-one exchange-bank arrangement makes it harder for newer or smaller exchanges to access banking services.
While the arrangement helps manage financial risks, applying the same stringent standards uniformly may be disproportionate given differences in company size, trading volume, and risk profile.
The study also noted that most won-denominated crypto trading in Korea takes place on just a few large platforms, making the market highly concentrated.
Liquidity gap highlights access barriers
The research pointed out that when a small number of platforms capture most trading volume, they benefit from deeper liquidity and faster execution.
This creates a cycle where users increasingly prefer the larger players, further limiting the reach of smaller exchanges.
As long as bank access remains difficult, this pattern is unlikely to change.
Concentration can reduce market dynamism, curb innovation, and limit consumer choice.
Consequently, the current arrangement may entrench the position of already powerful exchanges rather than promote healthy competition.
Lawmakers delay key digital-asset legislation
The review of exchange-bank links comes amid delays to broader legislative changes.
The Digital Asset Basic Act, which is expected to reshape the country’s crypto framework, was originally expected to be submitted by the end of 2023.
Lawmakers postponed that timeline to 2026.
The bill proposes allowing stablecoins backed by the South Korean won, provided issuers hold reserve assets with approved custodial banks.
The delay stems from disagreements over how to oversee stablecoin issuers and whether a new supervisory body should preapprove them.
The Financial Services Commission is also assessing how both financial and non-financial firms can participate in the sector without compromising safety.
The goal is to support innovation while maintaining robust regulatory safeguards.