South Korea's comprehensive crypto regulatory framework, the Digital Asset Basic Act, has hit a significant roadblock, with progress pushed into next year due to a deadlock between key financial authorities over which entities should be permitted to issue stablecoins. According to a report from Yonhap news agency, the Financial Services Commission's (FSC) proposed legislation includes strict investor protection measures for stablecoin issuers but remains stalled on fundamental questions of eligibility.
The proposed framework would require stablecoin issuers to manage their reserve assets exclusively in bank deposits or government bonds. Furthermore, issuers would be mandated to entrust 100% of their outstanding reserve assets with custodians such as banks. This measure is designed to prevent risks from an issuer's bankruptcy from spilling over to investors, creating a safety net similar to traditional finance.
The legislation also aims to impose significant obligations on digital asset service providers, including disclosure requirements, standardized terms of service, and advertising standards. In a notable shift, service providers could be held liable for damages resulting from hacks or system failures regardless of fault, mirroring existing rules for online retail businesses.
Additionally, the framework could pave the way for a regulated revival of initial coin offerings (ICOs) in South Korea. Local projects that meet strict information disclosure and robust risk management standards would be permitted to conduct ICOs, lifting a ban that has been in place domestically since 2017.
The core of the stalemate lies in a disagreement between the Bank of Korea (BOK) and the Financial Services Commission (FSC). The BOK insists that stablecoin issuance should be restricted to a consortium where banks hold at least a 51% stake, prioritizing financial stability and control. Conversely, the FSC argues against establishing a rigid ownership threshold, warning that such a restriction would hinder participation from technology firms and stifle innovation in the nascent sector.
The two authorities are also divided on the oversight mechanism. The BOK advocates for creating a new dedicated committee to license stablecoin issuers, while the FSC contends that a separate body would be redundant, as it already functions as a statutory administrative entity that includes representatives from both the BOK and the Ministry of Economy and Finance.
In response to the government's legislative delay, the ruling Democratic Party is reportedly developing a separate proposal that synthesizes various lawmaker-led initiatives on digital assets. The push for a local stablecoin market has gained political momentum under President Lee Jae Myung, who was elected earlier this year with an initiative to develop a Korean won-stablecoin market to protect monetary sovereignty against the dominant U.S. dollar stablecoin ecosystem.
The Digital Asset Basic Act represents the second part of South Korea's all-encompassing crypto regulatory framework. The first batch of rules, passed in July 2023 and effective a year later, focused on curbing unfair market practices like price manipulation and insider trading.
