South Korea abolishes the "1 crypto exchange 1 bank" binding restriction! Derivatives and institutional trading fully open

South Korean financial authorities are pushing for reforms in digital asset regulation, planning to abolish the “1 Exchange–1 Bank” binding restriction, allowing the issuance of crypto derivatives and transactions through corporate accounts, breaking the monopoly of large CEXs. Regulators believe that although this restriction is not legally mandatory, it has persisted long-term due to anti-money laundering (AML) measures, limiting competition. The policy will be incorporated into the second phase of the “Digital Asset Basic Law,” with bipartisan consensus on easing regulations.

South Korea abolishes the 1 Exchange–1 Bank rule to break monopolies

According to reports from The Korea Pioneer, Korean financial authorities are actively advancing reforms to the digital asset regulatory system, aiming to eliminate the “1 Crypto Exchange–1 Bank” binding restriction, permitting crypto derivative issuance and corporate account participation to break current market monopolies and promote liquidity.

The “1 Crypto Exchange to 1 Bank system” in Korea refers to each exchange being able to sign a real-name verification deposit and withdrawal account agreement with only one bank, and vice versa. This system mainly evolved to strengthen AML and accountability. Regulators believe that although this restriction is not legally enforced, it has long existed due to AML requirements, restricting competition among exchanges and user choice.

A report obtained by The Pioneer Economics indicates that removing the current “1 Exchange–1 Bank” practice could enhance competition and benefit consumers. While not explicitly mandated by law, in practice, exchanges and banks have effectively established one-to-one relationships due to AML and KYC requirements. Industry insiders have expressed concerns that applying the same standards to exchanges with different trading volumes and risk levels is overly harsh.

The drawbacks of this system include entrenching market structures. Exchanges partnered with major banks (such as Upbit) hold overwhelming advantages because users can only deposit via specific banks. This convenience continually expands the market share of leading exchanges. Smaller exchanges, even if offering better services or lower fees, struggle to attract users because opening additional bank accounts incurs high friction costs.

Three major drawbacks of the 1 Crypto Exchange–1 Bank system

Entrenched Monopoly: Leading exchanges’ advantages are unshakable, new entrants cannot compete

Limited Choice: Users are bound to specific bank-exchange combinations, unable to choose freely

Suppressed Innovation: Lack of competitive pressure results in insufficient motivation for exchanges to improve services

A government official stated: “Relevant departments are continuously discussing the scope and timing of regulatory relaxation. We are accelerating the process, dividing it into short-term, medium-term, and long-term tasks, aiming to announce within the year.” This clear timetable demonstrates the Korean regulators’ determination for reform.

Unleashing Capital through Derivative and Corporate Trading

Introducing digital asset derivatives is also considered a key area for improvement. Research teams believe derivatives can reshape the transaction structure, which is currently centered on spot trading, and alter the competitive landscape among exchanges. They also suggest allowing digital asset trading through corporate accounts to encourage capital inflows into the domestic market. They argue that as market size expands, liquidity gaps will narrow, trading efficiency will improve, and monopolistic positions may weaken.

Crypto derivatives are important because they provide short-selling and hedging tools. Currently, Korea’s crypto market only supports spot trading, where investors profit solely through buying and holding. When the market declines, investors can only sell or endure losses, lacking the ability to hedge risks or profit through shorting. Opening derivatives markets will enable professional traders and institutions to implement more complex strategies, enhancing market depth and efficiency.

The opening of corporate account trading has strategic significance. Currently, Korea’s crypto market is mainly dominated by retail investors, while corporate and institutional investors are unable to participate due to compliance restrictions. Once corporate accounts are open, Korean tech companies, investment funds, and even listed firms could allocate crypto assets. This influx of institutional funds would significantly increase market size and stability.

The research team notes, “The domestic Korean won virtual asset trading market is highly concentrated in the top two operators,” and “Economies of scale are very important for liquidity and trading efficiency in asset markets, but various regulatory restrictions in the domestic market limit the types of tradable assets and market participants, so the economic impact is not significant.” This assessment directly points to the core issues in Korea’s crypto market: the interdependent cycle of monopoly structures and regulatory restrictions.

The Fair Trade Commission and the Financial Services Commission are currently negotiating measures to relax key regulations related to digital assets. Previously, these two agencies conducted a study titled “Analysis of the Virtual Asset Trading Market and Competitive Impact Assessment of Key Regulatory Measures.” The project aimed to analyze the structure of the domestic digital asset market and the competition environment among exchanges, exploring ways to alleviate monopolies. The study is conducted by the Dongguk University Industry-Academia Cooperation Foundation.

Accelerating the second phase of the Digital Asset Basic Law legislation

Financial regulators are also considering relaxing controls based on this analysis. They are working to incorporate trading into the framework through the “Digital Asset Basic Law” (second phase digital asset law), while easing some regulations to prevent market contraction. Subsequent policies will be included in the second phase of the “Digital Asset Basic Law,” with bipartisan consensus on certain deregulation directions.

The Korean National Assembly is also working to revitalize digital asset trading. The Digital Asset Working Group (TF) of the Democratic Party will hold a meeting today to discuss the “Digital Asset Basic Law.” A member of the working group said: “Some aspects of institutionalization will inevitably require strengthened regulation,” but he added: “Considering the expanding market size and trading volume, we can also consider implementing regulatory sandbox mechanisms in certain areas.”

The Special Committee on Stock and Digital Asset Value Enhancement of the People Power Party held a “Digital Asset Industry Policy Meeting” on the 14th, exchanging views with industry representatives on issues related to the “Digital Asset Basic Law.” After the meeting, committee member Rep. Choi Bo-yoon stated: “We also discussed whether to directly apply stock market regulation provisions to virtual assets.” He added: “These issues (regulatory relaxation) have been discussed for a long time.”

Meanwhile, the ruling and opposition parties are coordinating on the details of the “Digital Asset Basic Law.” The Democratic Party plans to propose a bill focusing on the definition of digital assets, scope of licensing and registration systems, business conduct principles, and user protection, but without provisions restricting major shareholders’ ownership ratios in exchanges. Whether to restrict major shareholders’ ownership ratios remains a key point of disagreement among the ruling party, opposition, and financial regulators.

Both parties have reached a consensus on deregulation, indicating a shift in political support for the development of the crypto industry in Korea. Historically, Korea’s regulation has been strict, even considering a complete ban on crypto trading. However, as the crypto industry grows, matures technologically, and faces increasing global competition, Korea recognizes that excessive regulation could leave it behind in this emerging field.

However, reports indicate that issues such as foreign exchange market access and domestic exchanges expanding overseas were not included in the initial discussions. While this could promote competition, there are concerns about protecting domestic companies and managing foreign-invested firms. This cautious approach reflects Korea’s intent to balance market opening with the protection of local businesses.

A government official said: “We are coordinating with the government; discussions are accelerating, but the final direction remains to be seen.” While cautious, this statement clearly signals that reforms are underway. If these reforms are implemented within the year, they could significantly alter Korea’s market competitiveness and investment opportunities.

From a broader perspective, Korea’s regulatory reforms could serve as a model for other Asian countries. Japan, Singapore, and others have established relatively comprehensive crypto regulatory frameworks. Successful implementation of these reforms in Korea would make its crypto market more competitive internationally, attracting global capital and projects.