South Korea Crypto Regulation: Bold Move to End Exclusive Bank Partnerships for Exchanges

SEOUL, South Korea – December 2025. South Korean financial authorities are conducting a pivotal review that could dismantle a foundational practice in the nation’s cryptocurrency ecosystem: the exclusive ‘one exchange–one bank’ partnership model. This regulatory examination, coordinated between the Financial Services Commission (FSC) and the Fair Trade Commission, represents a significant shift in how policymakers approach market structure and competition within one of the world’s most active digital asset trading environments. The potential policy change arrives as the country prepares for the implementation of its landmark Digital Asset Basic Act, setting the stage for a transformed regulatory landscape.

South Korea Crypto Regulation: The ‘One Exchange–One Bank’ Model Under Scrutiny

For years, South Korean cryptocurrency exchanges have operated under an informal but powerful framework. Although not explicitly written into law, a de facto system emerged where each trading platform maintained an exclusive partnership with a single domestic bank. This arrangement primarily served Anti-Money Laundering (AML) and customer due diligence requirements, creating essential fiat on-ramps and off-ramps for users. Consequently, banking access became a critical bottleneck, with new or smaller exchanges often struggling to secure the necessary partnerships to operate legally and competitively.

According to reports from local media, including the Herald Economy, government-commissioned research has raised substantial concerns about this model’s competitive impact. The study analyzed the virtual asset trading market’s structure and assessed how existing regulations influence competition. Researchers reportedly concluded that the exclusive pairing system may reinforce market concentration by inherently limiting banking access. While the model aims to manage compliance risk uniformly, the study found this approach may be disproportionate when applied to exchanges with vastly different risk profiles and trading volumes.

Market Concentration and Competitive Barriers in Korean Crypto

The South Korean won-based cryptocurrency market demonstrates high concentration around a handful of major platforms. In such an environment, liquidity and transaction efficiency naturally favor dominant players. The government study highlighted that persistent barriers to entry, like exclusive banking requirements, can entrench these incumbents further. This creates a cycle where market leaders solidify their positions, not necessarily through superior technology or service, but through structural advantages tied to regulatory compliance frameworks.

Financial analysts observing the region note that this review aligns with global trends toward reassessing the relationship between traditional finance and digital assets. However, South Korea’s approach remains distinct due to its historically strict and unique regulatory posture. The review signifies a maturation in regulatory thinking—moving from pure risk mitigation toward fostering a healthy, competitive market that can innovate while maintaining robust consumer protections.

Expert Analysis: Balancing Risk and Innovation

Regulatory experts point to a fundamental tension at the heart of the review. On one hand, banks act as critical gatekeepers for financial integrity, performing essential Know Your Customer (KYC) and AML checks. An exclusive partnership model simplifies oversight for regulators by creating clear lines of responsibility. On the other hand, this model stifles competition and innovation. Newer exchanges, which might introduce novel security features or user interfaces, can be locked out of the market entirely if they cannot secure a banking partner, regardless of their technical merits.

The research suggests a move toward a more risk-proportional framework. This could involve tiered banking requirements based on an exchange’s volume, user base, and internal compliance controls, rather than a one-size-fits-all mandate for exclusivity. Such a system would allow regulators to maintain oversight while enabling a more dynamic and competitive marketplace.

The Digital Asset Basic Act: A Legislative Backdrop

The banking rule review does not occur in a vacuum. It unfolds against the backdrop of South Korea’s forthcoming comprehensive crypto legislation, the Digital Asset Basic Act. Lawmakers delayed the bill’s formal submission to 2026 due to unresolved debates, particularly concerning the supervision of domestic stablecoin issuers. The proposed legislation, championed by President Lee Jae-myung, aims to create a formal structure for the digital asset economy.

Key provisions of the anticipated Act include:

• Authorization for the issuance of Korean won-pegged stablecoins.
• A requirement for issuers to entrust reserve assets to authorized custodians, such as banks.
• Ongoing debate over whether a dedicated regulatory body should pre-approve stablecoin issuers.

The FSC is reportedly evaluating how to balance necessary oversight with a framework that allows participation from both traditional financial institutions and non-financial technology companies. The resolution of the banking partnership question will directly influence how these broader legislative pieces fit together, shaping everything from consumer access to the types of financial products available.

The Global Context and South Korea’s Position

South Korea’s regulatory evolution places it within a global spectrum. Jurisdictions like the European Union, with its Markets in Crypto-Assets (MiCA) framework, have established comprehensive rules that define roles for various service providers without mandating exclusive bank partnerships. Conversely, other markets maintain stricter segregation. South Korea’s potential move away from exclusivity could signal a strategic alignment with more open, yet still regulated, frameworks, aiming to capture innovation while managing systemic risk.

This policy shift also carries economic implications. A more competitive exchange landscape could lead to lower fees, better services, and increased innovation for Korean consumers. Furthermore, it could attract more international blockchain projects and capital to the South Korean market, reinforcing the country’s position as a leading hub for digital finance in Asia.

Potential Impacts and the Road Ahead

The outcome of the regulatory review will have cascading effects across the South Korean financial technology sector. If the exclusive model is relaxed or replaced, several changes are likely:

• Increased Competition: Smaller and newer exchanges could challenge incumbents, potentially driving innovation in security and user experience.
• Banking Sector Adaptation: Banks may develop more specialized crypto-risk assessment teams to service multiple exchanges with varying risk profiles.
• Regulatory Complexity: Oversight could become more complex for the FSC, requiring enhanced monitoring of multiple bank-exchange relationships.
• Market Evolution: The structure of the won-based crypto market could decentralize, moving away from the current high concentration.

The timeline for a decision remains unclear, but the inter-agency discussions between the FSC and the Fair Trade Commission indicate a serious, coordinated effort. Any change will likely be implemented gradually, with clear transition periods to ensure market stability and continuous compliance with AML standards.

Conclusion

The review of South Korea’s ‘one exchange–one bank’ rule marks a critical juncture in the nation’s approach to cryptocurrency regulation. By examining the competitive constraints of the existing model, authorities demonstrate a nuanced understanding that effective regulation must balance risk prevention with market vitality. This move, closely tied to the development of the overarching Digital Asset Basic Act, suggests South Korea is crafting a more mature, structured, and competitive framework for its digital asset economy. The decision will not only reshape the domestic landscape but also signal South Korea’s strategic direction in the global race to integrate cryptocurrencies into the formal financial system.

FAQs

Q1: What is the ‘one exchange–one bank’ rule in South Korea?
It is an informal regulatory practice where each licensed cryptocurrency exchange in South Korea must partner exclusively with one domestic bank to handle customers’ fiat currency deposits and withdrawals, primarily for Anti-Money Laundering compliance.

Q2: Why are South Korean regulators reviewing this rule now?
Regulators are reviewing the rule following a government-commissioned study that found the model may reinforce market concentration by limiting banking access for newer or smaller exchanges, potentially stifling competition.

Q3: How does this review connect to the Digital Asset Basic Act?
The review is part of broader preparations for the comprehensive Digital Asset Basic Act. Reforming the banking partnership model is seen as a step toward creating a more coherent and competitive regulatory framework ahead of the Act’s implementation.

Q4: What would change if the exclusive banking rule ended?
Exchanges could potentially partner with multiple banks, lowering a significant barrier to entry. This could increase competition, potentially leading to more innovation, better services, and a less concentrated market among South Korean crypto exchanges.

Q5: What are the main arguments for and against changing the rule?
Arguments for change center on increasing market competition and innovation. Arguments against change emphasize the need for clear AML oversight and the risk management simplicity of having a single, accountable banking partner for each exchange.