South Korea’s stablecoin bill stalls over issuer eligibility dispute: report

South Korea’s upcoming crypto regulation may impose strict investor protection requirements on stablecoin issuers, though progress has been pushed into next year as authorities remain deadlocked over which entities should be permitted to issue the assets.

According to a Tuesday report from Yonhap news agency, the Financial Services Commission’s proposed “Digital Asset Basic Act” seeks to require stablecoin issuers to manage reserve assets in bank deposits or government bonds. The proposal would also mandate that issuers entrust 100% of their outstanding reserve assets with custodians such as banks.

With this measure, South Korea aims to prevent risks stemming from a stablecoin issuer’s bankruptcy from spilling over to investors.

The proposal would also subject digital asset service providers to disclosure obligations, terms of service, and advertising standards comparable to those applied in traditional finance. Additionally, in the event of hacks or system failures, providers could be held liable for damages regardless of fault, similar to existing rules for online retail businesses.

Under the proposed framework, South Korea could permit initial coin offerings (ICOs) for local projects that meet the strict information disclosure and robust risk management standards. ICOs have been banned domestically since 2017.

Deadlock

However, South Korea’s stablecoin regulations remain at a stalemate, as the scope of entities permitted to issue the tokens continues to be a point of contention.

The Bank of Korea has insisted that stablecoin issuance should be restricted to a consortium in which banks hold at least a 51% stake. The FSC, on the other hand, maintains that the upcoming law should avoid establishing a rigid ownership threshold, arguing that such a restriction would hinder tech firm participation and stifle innovation.

The two authorities also remain divided on whether to establish a new consultative body for the licensing of stablecoin issuers, the report said. The Bank of Korea (BOK) advocates creating a dedicated committee to oversee the process, while the FSC argues that a separate body would be redundant, noting that 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 developing a separate proposal that synthesizes various lawmaker-led initiatives on digital assets, Yonhap added.

Local stablecoin efforts have gained momentum in South Korea as President Lee Jae Myung, who was elected earlier this year, made the development of a Korean won-stablecoin market one of his key initiatives with an aim to protect monetary sovereignty against the dominant U.S. dollar stablecoin market.

The Digital Asset Basic Act under development represents the second part of the country’s all-encompassing regulatory framework on cryptocurrencies. The first batch of rules — passed in July 2023 and went into effect a year later — focuses on curbing unfair acts in the digital asset market, such as price manipulation and insider trading.