Introduction
In light of the ongoing legislative process for the Digital Asset Basic Act, South Korea is being advised to implement provisional guidance for stablecoin licensing. This recommendation arises from a recent policy report released on July 29 by Hashed Open Research and the Solana Policy Institute, which encapsulates discussions from a symposium held on June 23 that included lawmakers, legal experts, and stakeholders from the digital asset sector.
Recommendations for Stablecoin Regulation
The report advocates for a gradual approach to managing the issuance of stablecoins as well as processing payments and recognizing foreign tokens, while a broader regulatory framework is still being negotiated. It asserts that delaying clear regulations under the upcoming Digital Asset Basic Act could hinder businesses looking to issue or utilize won-backed stablecoins, highlighting the urgency for interim guidance covering licensing, permissible activities, and payment service structures. This would enable businesses to adequately prepare for compliance before the final laws come into effect.
Comparative Insights and Legislative Discussions
Experts like Kim Hyo-bong, a partner at Bae, Kim & Lee, emphasized the importance of looking toward the European Union’s implementation of its Markets in Crypto-Assets Regulation (MiCA), whose stablecoin rules took effect on June 30, 2024, well in advance of the entire framework being enforceable. This comparison strengthens the case for South Korea to establish stablecoin regulations promptly.
Discussions among lawmakers, including Democratic Party member Ahn Do-geol, have explored a potential “compromise” model that would see banks maintaining majority ownership of stablecoin issuers, while fintech firms or non-bank entities would handle operational management. While this framework remains negotiable, it has been proposed that banks could own over 50% of an issuer, while a fintech partner might hold 34% with management rights. Proponents argue this could effectively merge the supervisory capabilities of banks with the operational expertise of tech firms, although critics worry that such bank-centric approaches could stifle competition.
Concerns and Future Directions
The Bank of Korea is backing a model that favors bank-led initiatives, raising concerns connected to monetary policy, foreign exchange, and financial stability. Central bank officials have warned that increasing ease in exchanging won and U.S. dollar stablecoins could complicate capital-flow oversight.
Heading into a policy briefing on July 29, the Financial Services Commission (FSC) signaled its intention to consolidate the Digital Asset Basic Act in collaboration with the ruling Democratic Party. Currently, ten proposals for digital assets and stablecoins are pending, although no specific timeline or final draft has been communicated.
The anticipated regulatory framework will likely address various components including stablecoin issuance, circulation protocol, trading conduct, necessary disclosures, and maintaining resilience in internal controls. Currently, the Virtual Asset User Protection Act governs issues related to custody and the prevention of unfair trading, but comprehensive rules regarding issuers and market structure are earmarked for later.
Broader Discussions and Key Policy Questions
Furthermore, the policy report prompts lawmakers not to overlook broader discussions surrounding payment infrastructures, public blockchains, tokenized assets, and the interactions between traditional financial markets and decentralized finance. These proposals reflect perspectives from symposium participants rather than officially established government policies.
Kim further pointed out the need for clarity regarding which digital asset operations are permitted for banks and other financial institutions. The report emphasizes the need for distinct licensing criteria for stablecoin payment transactions as well as regulations for foreign-issued tokens offered to South Korean users. Some of the key policy questions remain unresolved, including whether international issuers should establish local branches or comply with reserve and custodian requirements in South Korea.
Conclusion
As previously noted, South Korea is charting a broader initiative for won-backed stablecoins in conjunction with reforms in foreign exchange, testing of central bank digital currencies, and the introduction of tokenized government bonds. Moreover, the FSC aims to amalgamate ten pending proposals into a formal government-backed bill by 2026. However, unresolved issues persist regarding bank ownership models, the role of non-bank entities, reserve safeguard protocols, and the regulation of overseas stablecoins, with no definitive vote in parliament or specific implementation timelines currently announced. Additionally, no significant shift has been noted in the crypto market directly linked to the release of this policy report.
