South Korea’s financial regulators have initiated a thorough review of the practice known as the single-bank rule for exchanges, according to recent reports from local media. This measure, coordinated by the Financial Services Commission (FSC) and the Fair Trade Commission, seeks to assess whether the current model, which ties each platform to a single banking entity, limits competition in the national cryptocurrency market.
Although this exclusive partnership model is not explicitly codified in South Korean laws, it emerged as a practical norm due to strict requirements for Customer Due Diligence and anti-money laundering efforts. Consequently, exchanges have historically relied on unique partnerships with domestic banks to provide fiat money on-ramps and off-ramps to their users, which has generated an operational funnel.
Current policy discussions follow a government-commissioned research project analyzing the virtual asset trading market and the competitive impact of key regulations. The report concluded that exclusive exchange-bank pairing could be reinforcing market concentration in a few dominant players, by limiting banking access for newer or smaller platforms.
While the current model aims to manage compliance risk, the study found that applying uniform standards to exchanges with different risk profiles and volumes may be disproportionate. Furthermore, researchers highlighted that liquidity and transaction efficiency tend to favor established players when significant barriers to entry persist in the market, which is highly concentrated around a few large platforms.
The path toward new digital asset legislation
This regulatory review comes as the country prepares for the second phase of its crypto legislation, commonly referred to as the Digital Asset Basic Act. However, lawmakers delayed the submission of the bill until the year 2026 on December 31st, amidst unresolved disagreements over how domestic stablecoin issuers should be supervised.
The proposed legislation would allow the issuance of won-pegged stablecoins, requiring issuers to entrust reserve assets to authorized custodians such as banks. Likewise, the central debate revolves around whether a dedicated oversight body should pre-approve issuers, balancing oversight with a framework that allows participation from non-financial technology companies.
Will South Korea manage to foster real competition in its crypto market?
The potential elimination of the single-bank rule for exchanges represents a crucial turning point for the local industry. If regulators decide to open the market, it could mean a reduction in entry barriers for new platforms, challenging the dominance of current giants and offering more options to investors.
On the other hand, the government must find a delicate balance between fostering innovation and competition, and maintaining the strict anti-money laundering controls that originated the current norm. The next steps of the FSC and the Fair Trade Commission will be decisive in defining the future structure of the South Korean digital asset market before the arrival of the new law in 2026.
