South Korea Delays Digital Asset Law Over Stablecoin Rift

Source: CryptoTale Original Title: South Korea Delays Digital Asset Law Over Stablecoin Rift Original Link: https://cryptotale.org/south-korea-delays-digital-asset-law-over-stablecoin-rift/

• Stablecoin reserve rules aim to shield investors from issuer failure risk events.
• Disputes between banks and regulators delay the bill into next year amid ongoing talks.
• Domestic token sales may return with strict disclosure duties under new law plans.

South Korea’s government has delayed submitting its proposed Digital Asset Basic Act as regulators and financial institutions struggle to resolve key disagreements over stablecoin oversight and investor protection. According to reports, the delay pushes the proposal into next year, despite months of review by authorities. The legislation, also known as the Phase 2 Virtual Asset Bill, remains under examination by the Financial Services Commission, following consultations with lawmakers and financial bodies.

The legislation intends to set higher limitations for digital asset operators by creating standards of liability and protection measures for stablecoin investors. However, the differences among regulators and banks have hindered the process, which in turn has made the timeline for the decision unknown. Is it possible for South Korea to balance the pressure of crypto rules finalization with its dual innovation and financial stability objectives?

Investor Protection Measures Shape the Draft Bill

The draft law focuses first on investor protection within the digital asset market. Stablecoin issuers would need to back issued tokens with reserves held in deposits, government bonds, or similar low-risk assets. In addition, issuers would need to deposit or entrust at least 100% of issued balances with banks or approved custodians.

These provisions seek to block insolvency risks from reaching investors during emergencies. Lawmakers and regulators see reserve management as a core defense against sudden market stress. As discussions continue, officials review how these safeguards could fit existing financial rules.

Beyond stablecoins, digital asset operators will have additional responsibilities under the proposal. Among them are new standards for disclosure that will be under strict supervision, unambiguous contract terms, and a restricted advertisement policy. Regulators are also considering bringing the Electronic Financial Transactions Act into compliance when it comes to hacker incidents or system failures by making the operators strictly liable for damages.

Regulatory Disputes Delay Submission

Disagreements between the Financial Services Commission and domestic banks have driven the delay. The Bank of Korea has raised concerns about operational stability and regulatory compliance. As a result, officials paused submission to narrow gaps among institutions.

The central bank reportedly argues that only consortia with majority ownership should issue stablecoins. Its position favors limiting issuance to groups where banks hold at least 51% control. Officials believe this structure supports stability and oversight.

On the other hand, the Financial Services Commission is against putting fixed limits on bank participation. The authority asserts that setting such rigid ownership rules could discourage innovation and would keep tech firms away from the market. Discussions are underway as the two parties try to find a meeting point before the official submission.

Stablecoin Governance and Market Access Questions

Another dispute centers on governance during the stablecoin approval. The Bank of Korea supports the creation of a unanimous agreement body involving all relevant agencies. Officials see this as a safeguard at the issuance stage.

The Financial Services Commission takes a different view. It says a separate body remains unnecessary because an existing administrative framework already includes the central bank and the Ministry of Strategy and Finance as ex officio members. This disagreement remains unresolved.

The draft bill also addresses market access. It would permit domestic digital asset sales if issuers meet disclosure standards. This approach aims to curb the practice of issuing tokens overseas, then listing them locally, following the 2017 ban on domestic initial coin offerings. Capital requirements for stablecoin issuers, ranging from 500 million to 25 billion won, and whether to separate issuance from exchange operations, remain under debate.

Regulators continue discussions with an open mind. Meanwhile, delays have prompted the ruling party’s Digital Asset Task Force to prepare a separate plan based on bills already submitted to the National Assembly.