South Korea’s Digital Asset Basic Act Faces Delay Amid Stablecoin Oversight Disputes

• Stablecoin oversight divides regulators: Bank of Korea pushes for bank-majority consortia; FSC favors flexibility for tech firms.

• Bill mandates full reserve backing for stablecoins using bank deposits or government bonds, enhancing stability.

• Upbit holds 72% market share per 2025 regulatory data; political scandals intensify pressure on crypto legislation.

South Korea Digital Asset Basic Act delayed by stablecoin disputes. Explore investor safeguards, regulatory clashes, and political drama shaping crypto rules. Read now for key updates on protections and timelines.

What is causing the delay in South Korea’s Digital Asset Basic Act?

South Korea’s Digital Asset Basic Act, also known as the Phase 2 Virtual Asset Bill, faces submission delays primarily due to unresolved disagreements on stablecoin oversight between the Financial Services Commission (FSC) and the Bank of Korea. These disputes center on governance models, reserve requirements, and approval processes, pushing formal submission into the new year. This postponement affects anticipated investor safeguards amid a politically charged crypto landscape.

How do stablecoin regulations differ between South Korea’s FSC and Bank of Korea?

The Bank of Korea insists on consortium structures where banks hold at least 51% majority stakes to issue stablecoins, aiming to ensure operational stability and regulatory control. In contrast, the FSC argues this could stifle innovation by discouraging technology firms from participation. Disagreements also extend to approval mechanisms, with the central bank favoring unanimous consensus among agencies, while the FSC deems existing administrative coordination sufficient, including ex officio roles for the Bank of Korea and Ministry of Strategy and Finance. Initial capital requirements for issuers remain contested, ranging from 500 million to 25 billion won, alongside debates on separating stablecoin issuance from cryptocurrency exchange operations. An FSC official noted that discussions continue with other agencies to evaluate all options, underscoring the complexity of aligning financial prudence with market growth.

Frequently Asked Questions

When will South Korea submit the Digital Asset Basic Act for approval?

South Korea’s Financial Services Commission indicates the Digital Asset Basic Act submission is unlikely before the new year, as negotiations on stablecoin governance persist. The ruling party’s Digital Asset Task Force is preparing an alternative draft based on existing proposals to expedite progress.

What investor protections are included in South Korea’s Digital Asset Basic Act?

The Digital Asset Basic Act introduces no-fault compensation for users affected by system failures or security breaches, holding operators strictly liable. It enforces financial-industry standards like enhanced disclosures, standardized terms, and rigorous advertising rules under the Electronic Financial Transactions Act, all designed to bolster trust in the digital asset market.

Key Takeaways

• Regulatory Divide on Stablecoins: Bank of Korea vs. FSC clash over bank dominance and approval processes delays comprehensive crypto framework.
• Robust Safeguards Planned: 100% reserve backing with bank deposits or bonds, plus strict liability for hacks, targets investor security.
• Political Pressures Mount: Scandals involving ruling party leaders and dominant exchanges like Upbit highlight need for swift, impartial legislation.

Conclusion

South Korea’s Digital Asset Basic Act promises transformative investor protections and stablecoin regulations, yet disputes between the FSC and Bank of Korea have stalled progress until the new year. As political controversies, including allegations against Democratic Party leader Kim Byung-ki tied to exchanges like Upbit (holding 72% market share in early 2025 per regulatory data) and Bithumb, add urgency, stakeholders anticipate resolution. The ruling party’s alternative proposals signal momentum toward a balanced framework that fosters innovation while prioritizing stability—watch for updates as negotiations advance.

Background on the Digital Asset Basic Act Framework

The Digital Asset Basic Act represents a pivotal step in South Korea’s evolving cryptocurrency regulations. Under review by the Financial Services Commission, it builds on Phase 1 measures by introducing comprehensive standards for digital asset businesses. Key elements include mandatory 100% reserve assets for stablecoins, deposited in approved custodians like banks or holding government bonds. This ensures token holders’ claims are fully backed, mitigating risks seen in past global stablecoin controversies.

Operators face elevated accountability, with strict liability for losses from hacking or technical failures. No-fault compensation provisions allow investors swift redress without proving negligence, a significant upgrade from current frameworks. Disclosure requirements mirror those in traditional finance, demanding transparent reporting on operations, risks, and financial health. Advertising must comply with the Electronic Financial Transactions Act, curbing misleading promotions that have plagued the sector.

Stablecoin Governance: Core of the Dispute

Stablecoins form the bill’s cornerstone, given their role in bridging traditional finance and crypto ecosystems. The Bank of Korea’s position emphasizes caution: only bank-led consortia with over 50% control can issue tokens, preventing unchecked expansion by non-financial entities. This stance draws from concerns over monetary policy interference and systemic risks.

The FSC counters that such restrictions could hinder competition and technological advancement. Technology companies, pivotal in blockchain innovation, might shy away from a bank-dominated model. On approvals, the central bank seeks a new consensus body with unanimous decisions, involving multiple regulators. The FSC maintains current systems suffice, leveraging existing inter-agency coordination.

Capital thresholds remain fluid—proposals span 500 million won for smaller issuers to 25 billion won for larger ones—reflecting debates on scale-appropriate oversight. Structural separation of issuance from trading platforms is another flashpoint, aiming to isolate risks from volatile exchanges.

Political Dimensions and Market Dynamics

Legislative delays coincide with heightened political scrutiny. Ruling Democratic Party floor leader Kim Byung-ki faces calls to resign over claims he directed aides to criticize Upbit, South Korea’s leading exchange with 72% market share in the first half of 2025 according to regulatory filings. Reports surfaced that his son secured an internship at rival Bithumb shortly after a private meeting.

Kim’s office acknowledged aggressive questioning of Upbit and its operator Dunamu during National Assembly sessions but denied impropriety. He framed comments as addressing market monopolies and regulatory lapses, not personal ties. Bithumb confirmed the son’s data analysis role, fueling perceptions of conflicts amid concentrated market power—Upbit’s dominance raises antitrust concerns in a nascent industry.

Implications for Investors and Industry

For retail and institutional investors, the Act’s passage would signal regulatory maturity, potentially attracting more capital to South Korea’s crypto market, already a global leader in trading volume. Stablecoin clarity could spur adoption for payments and DeFi applications. Businesses preparing for compliance might invest in reserve management and cybersecurity upfront.

Delays risk prolonged uncertainty, possibly driving activity offshore or to less regulated venues. Yet, the task force’s parallel efforts suggest lawmakers prioritize action. FSC statements emphasize ongoing dialogues, with no major framework changes anticipated—just refinements for consensus.

Global observers note South Korea’s approach aligns with trends in the EU’s MiCA and U.S. stablecoin bills, balancing innovation and protection. As per statements from FSC officials, all viable paths are under assessment to deliver a resilient regime.