Current Market Structure and Regulatory Scrutiny
South Korea’s financial regulators are now evaluating the longstanding “one exchange–one bank” model, which has traditionally tied each cryptocurrency exchange to a single banking partner. This review is part of a broader examination of competition within the country’s cryptocurrency market. According to local reports, the Financial Services Commission (FSC) and the Fair Trade Commission are coordinating efforts to assess whether the current practices contribute to the concentration of market power among a few dominant exchanges.
While not formally established by law, this practice emerged due to Anti-Money Laundering (AML) and customer due diligence regulations, which required exchanges to work exclusively with domestic banks. This arrangement has effectively limited access to banking services for smaller or newer exchanges, leaving them with fewer options to process fiat on- and off-ramps for customers. The review stems from a government-commissioned study, which analyzed how existing regulations may affect competition in the virtual asset market.
Impact on Market Competition and Barriers for New Exchanges
According to the report, the reliance on exclusive banking partnerships has resulted in a highly concentrated crypto market in South Korea. The research indicates that this model might inadvertently reinforce the dominance of large platforms, making it difficult for smaller exchanges to compete.
The study concluded that applying uniform compliance standards to exchanges with varying risk profiles and volumes might be disproportionate, potentially discouraging new entrants.
In particular, the market remains highly centered around a few major exchanges, with liquidity and transaction efficiency predominantly favoring incumbents. The researchers highlighted that such market structures could create significant barriers to entry for new players, entrenching the position of dominant firms and stifling innovation in the process.
Regulatory Shift with Digital Asset Legislation on the Horizon
This review coincides with the ongoing development of South Korea’s Digital Asset Basic Act. The government is currently preparing for the second phase of the legislation, which has already been delayed until 2026 due to disagreements over the regulation of stablecoin issuers. The proposed bill aims to introduce new oversight mechanisms for stablecoins, allowing the issuance of won-pegged digital currencies while ensuring reserve assets are held with authorized custodians.
As the country looks to refine its regulatory landscape, the discussion around the exchange-bank partnership model has taken on new significance, especially as South Korea works to balance regulation with fostering innovation in the crypto space.