- The one-exchange-one-bank model is not a legal requirement, but it is widely practiced.
- A government study found that this setup limits access for smaller crypto exchanges.
- Major platforms dominate won-denominated trading due to deeper liquidity.
South Korea’s main regulators are reportedly reviewing how local cryptocurrency exchanges partner with banks, aiming to level the playing field.
Under the current arrangement, each exchange typically connects to a single bank, restricting options and raising entry barriers for smaller firms.
Although this configuration is not explicitly mandated by law, it became common in response to anti-money laundering and identity verification requirements.
The Financial Services Commission and the Fair Trade Commission are coordinating a review to determine whether the long-standing practice suppresses competition and entrenches the dominance of a few large exchanges.
Rules may favor larger exchanges
Currently, exchanges often need exclusive banking partnerships with domestic banks to enable customers to deposit and withdraw Korean won.
Without that link, exchanges cannot offer basic fiat custodial services.
The model emerged as regulators increased demands for transparency and risk controls, but it may now disadvantage smaller market participants.
A recent government-commissioned study examined how crypto-related rules affect competition.
According to findings reported by local outlet Herald Economy, researchers concluded that the one-exchange-one-bank setup makes it harder for newer or smaller exchanges to secure banking services.
While these measures help manage financial risks, applying uniformly strict standards can be excessive when firms differ widely in size, trading volume, and risk profile.
The study also found that most won-based crypto trading in Korea occurs on a handful of large platforms, leaving the market highly concentrated.
Liquidity gaps highlight entry barriers
Research showed that when a few platforms dominate trading volume, they benefit from deeper liquidity and faster execution.
That creates a feedback loop: users gravitate toward the large players, further limiting the market reach of smaller exchanges.
As long as banking access remains difficult, this dynamic is unlikely to change.
Such concentration can make the market less dynamic, curb innovation, and reduce consumer choice.
Consequently, the current setup may reinforce the position of already powerful exchanges instead of encouraging healthy competition.
Lawmakers delay key digital-asset bill
The review of crypto-banking links comes amid delays to broader legislative changes.
The Digital Asset Basic Act, intended to reshape crypto regulation in the country, was originally scheduled for introduction by the end of 2023.
On December 31, legislators pushed the matter back to 2026.
The bill would allow issuance of won-backed stablecoins if issuers keep 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 examining how to allow both financial and non-financial firms to participate in the space without compromising safety.
The stated goal is to support innovation while maintaining strong regulatory safeguards.