Delay in Digital Asset Basic Law Implementation
In a significant development for the cryptocurrency market, South Korea has decided to delay the implementation of its Digital Asset Basic Law until 2026. This decision stems from ongoing disagreements between regulatory bodies regarding who should oversee stablecoin regulations, resulting in a lack of clarity in one of Asia’s primary crypto hubs.
Regulatory Impasse
Legislative sources indicate that the Financial Services Commission and the Bank of Korea are at an impasse over their respective roles in managing stablecoin reserves and the enforcement of legal regulations. As discussions continue, authorities have opted to hold off on advancing the proposed law to prevent passing legislation that may be riddled with unresolved issues.
Key Components of the Proposed Law
The intended Digital Asset Basic Law is seen as a cornerstone for South Korea’s framework governing cryptocurrencies. It aims to enhance protections for investors by introducing more rigorous legal requirements for digital asset businesses. Notably, the draft bill suggests a principle of no-fault liability, targeting digital asset operators with accountability for user losses even if negligence is not established.
Another key component involves mandates for stablecoin issuers, who would be required to keep reserves above 100% of their circulating supply. These reserves must be held in banks or other authorized institutions with clear separation from the issuing entity’s finances, minimizing the risk of contagion in the event of financial instability.
Impact on the Cryptocurrency Landscape
Despite a general agreement on the necessity for improved oversight of stablecoins, regulatory stakeholders have yet to find a common ground concerning the allocation of responsibilities regarding reserve management and licensing processes. The absence of consensus threatens to delay critical decisions about regulatory powers and the handling of reserve assets.
The impact of this postponement is expected to be felt across South Korea’s cryptocurrency landscape, affecting exchanges, payment processors, and stablecoin creators in their strategic planning, product launch timelines, and investment activities.
Future Legislative Efforts
Additionally, the ruling Democratic Party is currently exploring a consolidation of various legislative proposals into a single reformed digital asset bill. President Lee Jae Myung has emphasized the importance of establishing a Korean won-backed stablecoin, suggesting it could help reduce the influence of US dollar-pegged stablecoins in global markets, a focus echoed by the presidential office.
It is worth noting that this delay marks a significant step in the second phase of South Korea’s approach to cryptocurrency regulation, following the first phase, which focused on addressing unfair trading practices in the sector. Furthermore, the nation’s Virtual Assets Committee, which was established last year to oversee crypto regulation, has recently become inactive, adding another layer of uncertainty to the regulatory environment.
