South Korea Evaluates Exclusive Crypto Exchange Banking Model, Threatening Market Competition

South Korea’s government is evaluating practices that link each digital asset trading platform exclusively with one domestic banking partner. The main concern revolves around whether this model hampers healthy competition in the country’s cryptocurrency market. According to recent reports, the Financial Services Commission (FSC) and the Fair Trade Commission have launched a comprehensive review of Korea’s crypto market structure, focusing on whether current banking regulations create disproportionate entry barriers.

One Bank per Exchange Partnership Creates Entry Barriers for New Players

The “one exchange–one bank” model has emerged as an industry norm despite not being formally mandated by South Korean law. This system developed due to the need for anti-money laundering (AML) compliance and strict customer due diligence procedures. As a result, nearly all domestic crypto exchanges have established exclusive banking partnerships to facilitate fiat-to-digital asset transactions for their customers.

This exclusive structure presents significant challenges. Smaller or new trading platforms face difficulties gaining banking access comparable to established players. While this model is designed to manage compliance risks, government-commissioned research found that applying uniform standards across exchanges with diverse risk profiles and transaction volumes creates an disproportionate burden on smaller operators.

Government Study Finds Increasing Market Concentration

Research conducted at the government’s initiative and reported by Herald Economy analyzed the virtual asset trading structure and the competitive impact of the existing regulatory framework. The findings indicate that exclusive exchange-bank partnerships significantly reinforce market concentration, particularly by limiting banking access for new entrants seeking to enter the industry.

The won-based cryptocurrency market remains highly concentrated around a few major platforms. In such a market environment, liquidity and transaction efficiency tend to favor dominant players. This condition can strengthen incumbents’ positions when entry barriers remain high. This phenomenon creates a difficult cycle for competitors trying to grow and capture market share.

FSC and related regulators are now evaluating whether existing regulations should be adjusted to enhance competition. The key question is how to balance risk management and compliance with opening market access for new players.

Stablecoins and Second Phase Legislation Focus of Regulatory Reform

This review of the banking model coincides with South Korea’s preparations for the second phase of crypto legislation, known as the Digital Asset Act. The draft law was initially scheduled to be submitted by the end of 2025 but was delayed until 2026 on December 31, due to unresolved disagreements over the supervision of domestic stablecoin issuers.

The proposed legislation, supported by prominent political figures, will allow the issuance of stablecoins pegged to the Korean won. Issuers will be required to entrust reserve assets to authorized custodians, such as selected banks. The most controversial discussion centers on whether a dedicated supervisory body should give prior approval to prospective stablecoin issuers.

FSC is evaluating how to balance the need for strict oversight with a sufficiently flexible framework to enable participation from non-financial technology companies. This decision will have broad implications for the future competitive dynamics of Korea’s crypto industry. Whether new regulations will open opportunities for new entrants or further entrench existing players remains an open question facing policymakers.