Introduction of Stablecoin Interest Payment Ban
The Financial Services Commission (FSC) of South Korea is set to introduce a ban on interest payments for stablecoin holders as part of a broader strategy to bolster financial stability while encouraging innovation in the digital asset sector. This announcement was made by FSC Chairman Lee Eok-Won during a parliamentary review session on October 20, as reported by Yonhap News.
Details of the Legislation
The new legislation, expected to be finalized by the end of 2025, will prevent individuals from earning yields on their stablecoin investments. This move is aimed at safeguarding the financial landscape while still allowing room for technological advancements.
Comparison with U.S. Regulations
This initiative reflects a growing trend seen in the United States, particularly with the GENIUS Act, which similarly prohibits stablecoin issuers from offering interest to holders. This U.S. law intends to clearly differentiate payment stablecoins from traditional bank deposits, aiming to mitigate the risks associated with interest-bearing digital currencies.
However, critics point out that the GENIUS Act may create a loophole, allowing crypto exchanges to still offer rewards on stablecoins. This has sparked worries among American banks about the possible implications of significant deposit withdrawals that could disrupt the financial system.
Chairman Lee’s Remarks
In his remarks, Chairman Lee emphasized the need for banks to take the lead in stablecoin issuance, positioning fintech companies merely as supportive entities. This approach seeks to maintain a clear demarcation between traditional banking services and digital finance innovations.
Furthermore, the proposal explicitly prohibits crypto exchanges from creating their own stablecoins.
Future Regulatory Framework
To support these developments, the FSC is preparing to present a revised ‘phase 2 cryptocurrency law’ to the National Assembly by the end of the current year. The regulatory framework under consideration aims to provide adequate protection while also facilitating the deployment of stablecoins in various financial roles, including payments, remittances, and international transactions. Complementary regulations will likely accompany this law to ensure its prompt and effective enactment.
