On Wednesday, the ruling Democratic Party of South Korea unveiled a proposed 'Digital Asset Basic Act', aiming to establish a robust legal framework governing digital assets. This encompasses their issuance, trading, custody, and supervision. The proposal acknowledges the growing significance of digital assets as a pivotal medium connecting the real economy to financial markets.
It categorizes value-linked digital assets, such as those pegged to fiat currencies or real-world assets, as requiring authorization from issuers, maintenance of refund reserves, and adherence to redemption obligations. The proposal emerges amidst stalled negotiations over the Digital Asset Basic Act, which have been ongoing since the beginning of the year. Regulators have been at odds over the issuance of stablecoins pegged to the won, with the Bank of Korea advocating for the exclusive authorization of banks with at least 51% ownership, while the Financial Services Commission warned that this could stifle innovation. The bill seeks to 'lay the groundwork for Korea to spearhead the global digital financial order'.
To issue digital assets under this proposal, entities must secure approval and fulfill specific requirements, including capital thresholds, operational capacity, and reserve plans. The legislation introduces a licensing regime for digital asset businesses, encompassing trading, brokerage, custody, and advisory services, alongside registration and reporting obligations. It also establishes stringent rules regarding disclosures, internal controls, and market conduct, including prohibitions on unfair trading practices such as market manipulation and the misuse of non-public information. Furthermore, the proposal advocates for the establishment of a digital asset committee tasked with reviewing and coordinating policy, as well as the development of national basic and implementation plans for the sector.
It highlights the current system's limitations, primarily focused on investor protection and lacking a comprehensive framework addressing issuance, disclosure, and market structure. This proposal follows the Financial Services Commission and Financial Supervisory Service's announcement of new rules mandating all domestic cryptocurrency exchanges to adopt a unified, stringent system for delaying withdrawals, aimed at curbing voice phishing scams that exploit speed.