Competitive Structure of the Korean Market: The Bank Partnership Model of Cryptocurrency Exchanges is Under Scrutiny

A structural transformation of the cryptocurrency market is underway in South Korea. The financial authorities are currently conducting a comprehensive assessment of the health of competition within the domestic crypto market. According to reports from Cointelegraph, the Financial Services Commission (FSC) and the Fair Trade Commission are collaborating to scrutinize, in particular, how the relationship between crypto exchanges and banks impacts the overall market.

"One Exchange – One Bank" Model Accelerates Market Concentration

Currently, it is common practice for South Korean crypto exchanges to form exclusive partnerships with one bank each. This practice is not explicitly mandated by South Korean law but has been effectively established as a rule in response to anti-money laundering (AML) and customer due diligence requirements.

A research project commissioned by the government analyzed the impact of this structure in detail. The report obtained by Herald Economics concludes that the single partnership model with banks could exacerbate market concentration by restricting banking access for emerging and smaller exchanges.

The Reality of Entry Barriers in the Korean Market

Regulatory authorities introduced the current model from the perspective of compliance risk management. However, the research findings point out that applying the same standards to exchanges with varying risk levels and transaction scales produces results that diverge from the original intent.

The Korean won-denominated crypto market is highly concentrated among a few large platforms. In such a market environment, liquidity and trading efficiency favor major players, creating high entry barriers that solidify the position of existing companies. New entrants face difficulties from the initial stage of securing partnerships with banks.

Simultaneous Developments in Stablecoin Regulations: Complexity of System Design

Discussions on revising this market structure are aligned with the preparation of South Korea’s second phase of crypto legislation, known as the "Digital Asset Basic Act." At the end of last year (December 31), lawmakers decided to postpone the bill submission until 2026 due to disagreements over the supervision of stablecoin issuers.

The proposed legislation supported by President Lee Jae-myung envisions allowing the issuance of won-denominated stablecoins while requiring issuers to entrust reserves to approved custodians such as banks.

Current debates focus on whether a dedicated supervisory agency should pre-approve issuers. The FSC faces the challenge of balancing a framework that promotes market participation with effective oversight. Proper regulation design in the Korean market is not only a matter of financial safety but also a critical issue that tests the balance between maintaining market competition and fostering industry growth.