South Korea Reassesses Crypto Exchange Banking Model Amid Competition Concerns

South Korea’s financial regulators are conducting a comprehensive review of the established practice linking each crypto exchange to a single banking partner. The Financial Services Commission and Fair Trade Commission jointly launched this evaluation to examine whether the current system constrains fair competition and limits banking access for smaller platforms. The reassessment represents a significant shift in how South Korea approaches crypto market oversight and financial inclusion within the virtual asset sector.

Regulatory Background: How the Single-Bank Partnership Model Took Shape

The exclusive banking relationship requirement emerged not from written law, but from practical implementation of Anti-Money Laundering (AML) and customer due diligence compliance mandates. Under this framework, each crypto exchange must secure an individual partnership with a financial institution to facilitate fiat currency deposits and withdrawals. Officials involved in the review told local media that a government-commissioned research project examined the structure of South Korea’s digital asset market and its regulatory architecture.

The study’s findings revealed significant implications for market structure. Researchers concluded that the single-bank model strengthens market concentration and creates barriers to entry for new platforms seeking to establish basic banking relationships. According to the report, uniform compliance requirements impose proportionally heavier burdens on smaller exchanges with limited operational resources and trading volumes compared to their larger counterparts.

Market Concentration and Competitive Dynamics in South Korea’s Crypto Landscape

The won-based crypto market remains heavily concentrated among a few dominant exchanges, where liquidity and transaction advantages accumulate. This concentration creates a self-reinforcing cycle: larger platforms attract greater trading depth and faster settlement speeds, making it progressively difficult for emerging competitors to acquire users and integrate fiat payment solutions due to restricted banking access.

Researchers emphasized that a one-size-fits-all compliance approach fails to account for differences in platform scale and risk profiles. The study suggested that differentiated regulatory requirements—tailored to exchange size and risk exposure—could help decentralize trading activity and encourage broader market participation. Officials are now exploring whether proportional compliance standards could better balance supervision with innovation across the crypto ecosystem.

Path Forward: 2026 Crypto Regulatory Framework and Compliance Evolution

South Korea’s regulatory overhaul extends beyond the banking model review. Lawmakers are simultaneously drafting the second phase of comprehensive crypto legislation under the proposed Digital Asset Basic Act. The government delayed submitting the bill until 2026 to resolve disagreements regarding stablecoin oversight and custodian requirements.

The upcoming framework would authorize the issuance of won-pegged stablecoins while mandating that reserve assets be held by authorized custodians. However, policymakers remain divided on whether a dedicated regulatory body should pre-approve stablecoin issuers. Officials plan to integrate findings from the banking model review into the new legislative structure, creating a more cohesive approach to crypto supervision. President Lee Jae-myung has endorsed this initiative, urging regulators to finalize a policy framework that accommodates both financial and non-financial sector participants in the crypto economy.