South Korea”s efforts to regulate digital assets have hit significant obstacles, leading to a delay in the implementation of the Digital Asset Basic Act. Initially expected to be enacted by the end of this year, the legislation is now postponed until 2026 due to conflicting views among key stakeholders.
The proposed act aims to provide a framework for cryptocurrency regulation, with a particular focus on stablecoins. The Financial Services Commission (FSC) has designed regulations that would require stablecoin issuers to back their coins with reserves in low-risk assets, such as bank deposits or government bonds, to protect investors in case of issuer bankruptcy.
In addition to stablecoin regulations, the proposed rules impose strict obligations on cryptocurrency service providers. These include compliance with consumer protection standards similar to those in South Korea”s traditional retail markets. Requirements encompass detailed service contracts, thorough information disclosures, and stringent advertising practices, with service providers held liable for any system failures or cybersecurity breaches.
The ongoing delay in the legislation largely stems from differing opinions on who should be authorized to issue stablecoins. The Bank of Korea (BOK) argues that only entities with majority bank ownership should issue stablecoins to mitigate financial risks. Conversely, the FSC contends that such restrictions could stifle innovation by excluding technology firms from the market.
Additionally, the proposal to create a new advisory body for licensing has further polarized opinions. While the BOK supports this initiative, the FSC believes it is unnecessary, citing existing frameworks involving the central bank and economic policymakers.
The ruling Democratic Party has begun consolidating various legislative proposals from lawmakers, aiming for a cohesive strategy amidst rising local stablecoin projects. President Lee Jae Myung has emphasized the necessity of developing a national stablecoin to maintain monetary sovereignty in a market increasingly influenced by the US dollar.
South Korea”s earlier legislative measures addressing market manipulation and insider trading, adopted in July 2023, marked the beginning of its regulatory journey in the cryptocurrency space. However, the future of these initiatives through the Digital Asset Basic Act remains uncertain without resolution to the ongoing disagreements.
