South Korea Evaluates Crypto Exchange Banking Partnerships Amid Market Competition Concerns

South Korea's financial regulators are scrutinizing the practice that links each cryptocurrency exchange to a single banking partner, as part of a broader assessment of competition within the nation's crypto market. According to Cointelegraph, this review is being coordinated between the Financial Services Commission (FSC) and the Fair Trade Commission, with policymakers examining whether current practices contribute to market concentration. Although the 'one exchange–one bank' model is not explicitly enshrined in South Korean law, it has developed in practice due to Anti-Money Laundering (AML) and customer due diligence requirements. Consequently, crypto exchanges have typically formed exclusive partnerships with domestic banks to facilitate fiat transactions for customers. The policy discussions reportedly follow a government-commissioned research project that analyzes the virtual asset trading market and the competitive impact of key regulations in South Korea. The study explored the structure of the crypto market and assessed how existing regulations might influence competition among domestic exchanges. The report, obtained by the Herald Economy, concluded that the exchange-bank pairing model could reinforce market concentration by restricting banking access for newer or smaller exchanges. While the model aims to manage compliance risk, the study found that applying uniform standards to exchanges with varying risk profiles and volumes may be disproportionate. Researchers noted that the Korean won-based crypto market remains highly concentrated around a few large platforms. In such markets, liquidity and transaction efficiency tend to favor dominant players, potentially entrenching incumbents when barriers to entry persist. The reported review coincides with preparations for the second phase of South Korea's crypto legislation, known as the Digital Asset Basic Act. On December 31, lawmakers postponed the submission of the bill to 2026 due to unresolved disagreements over the supervision of domestic stablecoin issuers. The proposed legislation, supported by President Lee Jae-myung, would permit the issuance of won-pegged stablecoins while requiring issuers to entrust reserve assets to authorized custodians such as banks. The debate focuses on whether a dedicated oversight body should pre-approve issuers, with the FSC evaluating how to balance oversight with a framework that allows participation from non-financial technology companies.