Why Regulators Are Reexamining Exchange-Bank Ties
South Korea’s financial authorities are reviewing a long-standing practice that effectively links each cryptocurrency exchange to a single banking partner, according to local media reports. The review forms part of a wider examination into competition within the country’s crypto market and is being coordinated between the Financial Services Commission and the Fair Trade Commission. The arrangement, often described as the “one exchange–one bank” model, is not written into law. Instead, it developed through enforcement of Anti-Money Laundering rules and customer due diligence requirements. Under this setup, crypto exchanges typically rely on exclusive relationships with domestic banks to provide won-denominated deposit and withdrawal services. While the model was designed to limit compliance risk, regulators are now questioning whether it has also shaped market structure in ways that favor a small number of established platforms. Officials cited by the Herald Economy said the review is part of an inter-agency effort to assess whether current practices unintentionally restrict competition.
Investor Takeaway
How the Model Shaped South Korea’s Crypto Market
The exchange–bank pairing emerged after South Korea tightened oversight of digital asset trading in recent years. Banks were required to issue real-name accounts only to exchanges that met strict AML and operational standards. In practice, many banks chose to work with just one exchange to limit exposure and compliance complexity. As a result, access to fiat on- and off-ramps became concentrated among a handful of platforms that secured early banking relationships. Smaller or newer exchanges often struggled to find partners willing to support them, regardless of trading volumes or risk profiles. According to a government-commissioned study cited in the Herald Economy report, this structure may have reinforced market concentration. The research found that applying uniform compliance standards across exchanges of vastly different sizes could be disproportionate, effectively favoring incumbents with higher liquidity and established user bases. In highly concentrated markets, the study noted, liquidity and transaction efficiency tend to gravitate toward dominant platforms. When combined with limited banking access, these dynamics can entrench large players and make it harder for competitors to gain traction.
What Regulators Are Considering Changing
The review does not yet point to specific rule changes, but the focus appears to be on whether banks should be allowed—or encouraged—to work with multiple exchanges under clearer risk-based standards. Regulators are also examining whether current practices align with competition policy, given that the model arose through enforcement rather than legislation. Any changes would need to balance financial crime controls with market access. Banks remain cautious about crypto exposure, particularly where compliance failures could result in penalties. Regulators are therefore weighing how to preserve AML safeguards while reducing structural advantages tied to exclusive partnerships. The outcome could range from refined guidance on bank–exchange relationships to broader adjustments in how compliance risk is assessed across platforms. Officials have not indicated a timeline, but the review suggests a willingness to revisit assumptions that shaped the market’s early regulation.
Investor Takeaway
How This Ties Into South Korea’s Next Crypto Law
The review comes as South Korea prepares the second phase of its crypto regulatory framework, often referred to as the Digital Asset Basic Act. Lawmakers delayed submission of the bill to 2026 at the end of last year, citing unresolved debate over how domestic stablecoin issuers should be supervised. The proposed legislation would allow issuance of won-pegged stablecoins while requiring reserve assets to be held with authorized custodians, typically banks. A key point of debate is whether issuers should be subject to pre-approval by a dedicated oversight body or supervised under a broader framework that also allows participation from non-financial technology firms. Questions around banking access sit at the center of this debate. Stablecoin issuance, exchange operations, and custody services all depend on bank relationships. Any shift in how those relationships are structured could shape how the Digital Asset Basic Act is implemented in practice. Taken together, the competition review and the upcoming legislation suggest South Korea is reassessing how tightly crypto activity should be funneled through a small number of regulated gateways. Whether this leads to a more open market or simply a recalibration of controls will depend on how regulators balance competition with risk management.