South Korea Caps Crypto Lending Interest At 20 Percent

South Korea just put new guardrails around crypto lending. The Financial Services Commission has capped lending rates at 20 percent and banned leverage beyond collateral value. These rules kick in on September 5, 2025, and the clear focus is on reducing excessive risk for retail investors.

Limits on Leverage to Protect Retail Investors

A hard ceiling on interest means lenders can’t trap borrowers with crushing debt during volatile swings. Cutting off leveraged loans removes the cycle where traders borrow more than their assets and end up liquidated when markets turn. For many retail investors, these changes add an extra layer of borrower safeguards that could prevent losses that spiral out of control.

Collateral Rules for Crypto Lending

The framework goes beyond lending limits.Investors can use only the top 20 cryptocurrencies by market cap, or those traded on at least three licensed local exchanges, as collateral. If regulators flag an asset, lenders must suspend it immediately. That reduces exposure to thinly traded tokens and improves market trust. Providers themselves also face a capital requirement, funding loans only with their own money rather than relying on third parties. That pushes accountability squarely onto the platforms.

Borrower safeguards are written in as well for crypto lending. Lending amounts will depend on experience and transaction history. Borrowers will now get early warnings if collateral values drop too far. First-timers even need a short certification course through the Digital Asset Exchange Alliance. These steps reflect an effort to build a more informed base of retail investors and cut down on panic-driven liquidations.

Market Reactions to New Crypto Lending Rules

Reactions in the market are mixed. Exchanges like Upbit and Bithumb paused lending services to adjust. Some providers worry about upfront compliance costs. Still, there’s a sense that stronger rules could bring long-term stability and improve market trust. Institutional players are more likely to enter if the ground rules are clear and risks are better managed.

Global Compliance and Reporting Framework

South Korea is not making these changes in isolation. The country has signed onto the OECD’s Crypto-Asset Reporting Framework, with exchanges required to report cross-border trades by 2027. Real-name bank accounts remain mandatory for all crypto activity, and know-your-customer checks are being tightened. Listing standards and donation rules are being sharpened to prepare the way for institutional adoption later this year.

Global Compliance and Reporting Framework

Compared to global peers, the approach is firm but not unique. Singapore already prohibits leverage for retail crypto. The EU’s MiCA framework does not cap lending rates but enforces strict reserve rules for stablecoins. The United States has yet to align at the federal level, leaving a patchwork of state sandboxes and pending bills.

Taken together, the FSC’s rules set a higher bar for accountability in crypto lending. Retail investors might lose some flexibility, but the upside is a market that faces fewer shocks and has clearer safeguards. Over time, stricter rules and solid capital requirements could help restore trust in digital finance.