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- South Korea’s stablecoin regulations aim to protect investors’ interests.
- Deadlock persists as authorities disagree on issuer control structure.
- New legislation could revive ICOs with stricter disclosure standards.
South Korea is developing a new regulatory framework for stablecoins, aiming to enhance investor protection and mitigate financial risks associated with these digital assets. According to the proposed legislation for stablecoin issuers, the stricter set of rules under the Financial Services Commission (FSC) Digital Asset Basic Act requires stablecoin issuers to maintain reserve assets in a secure form, such as bank deposits or government bonds.
This is meant to avoid the risk of investors being affected by issuer bankruptcies. The proposal further requires issuers to deposit 100% of the reserve with reputable custodians, such as banks.
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The new legislation would apply high standards to digital asset service providers, including mandatory disclosures, transparent terms of service, and advertising requirements, which are similar to those of traditional financial institutions. Moreover, the situation will involve providers being liable for damages in the event of system malfunctions or hacks, irrespective of fault, which is similar to the laws governing online retailers.
Another element related to the future of Initial Coin Offerings (ICOs) is South Korea’s decision to regulate stablecoins. As of 2017, ICOs are outlawed in the country, but they may be reinstated with stringent requirements, including full disclosure of information and effective risk management. This is a key aspect of the country’s digital asset strategy.
Regulatory Stalemate Over Issuer Control
Regardless of the presented regulations, the manner in which South Korea will regulate the issuance of stablecoins remains unclear. One area of disagreement between the authorities is which entities are to be permitted to issue stablecoins. The Bank of Korea (BOK) demands that the issuance of stablecoins be restricted to a consortium in which banks must own at least 51% of the shares. The FSC, however, does not support such restrictions, as they would hinder innovation, especially among tech companies.
Additionally, the two bodies differ on whether to establish a separate body to license issuers of stablecoins. The BOK advocates for the creation of a special committee. In contrast, the FSC believes that the existing one, with representatives from the BOK and the Ministry of Economy and Finance assigned to it, is sufficient.
Alternative Legislative Efforts to Overcome Stalemate
The South Korean government is deliberating on alternative solutions in a legislative form as the debate continues. The majority of the Democratic Party is also preparing its own proposal to integrate different initiatives led by lawmakers, which can accelerate the regulatory process. This evolution underscores the current tension between legal agencies and governmental actors, as they seek to strike a balance between innovation and investor protection.
Local Initiatives Push for a Korean Won-Backed Stablecoin
Under the management of President Lee Jae Myung, local efforts have been made to create a domestic won-based stablecoin, aiming to reduce dependence on large U.S. dollar-based stablecoins.
This relocation aligns with mainstream initiatives aimed at achieving monetary sovereignty for South Korea amid the growing global market for digital assets. Implementing a won-backed stablecoin would enable more control over the country’s digital economy and provide a competitive alternative to the worldwide stablecoin market.
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