On Wednesday, South Korea's ruling Democratic Party unveiled a proposed 'Digital Asset Basic Act' aimed at establishing a robust legal framework for digital assets. This framework encompasses issuance, trading, custody, and supervision of digital assets.
According to the proposal, 'digital assets are emerging as a key medium connecting the real economy and financial markets.' It categorizes value-linked digital assets, such as those tied to fiat currencies or real-world assets, as requiring authorization from issuers, maintaining refund reserves, and fulfilling redemption obligations. The proposal emerges amid stalled negotiations over the Digital Asset Basic Act, which began earlier this year when regulators disagreed over the issuance of won-pegged stablecoins. The Bank of Korea advocated for banks with 51% ownership to be the sole authorized issuers of stablecoins, while the Financial Services Commission warned that this could stifle innovation.
The proposed legislation seeks to 'establish a foundation for Korea to lead the global digital financial order.' To issue such assets, entities must obtain approval and meet specific requirements, including capital thresholds, operational capacity, and reserve plans. The legislation would also introduce licensing, registration, and reporting requirements for digital asset businesses, including trading, brokerage, custody, and advisory services. Furthermore, it establishes rules on disclosures, internal controls, and market conduct, including prohibitions on unfair trading practices such as market manipulation and the use of non-public information.
The proposal calls for the creation of a digital asset committee to review and coordinate policy, as well as national basic and implementation plans for the sector. It notes that South Korea's current system primarily focuses on investor protection but lacks a comprehensive framework covering issuance, disclosure, and market structure. This proposal follows the announcement of new rules by the country's Financial Services Commission and Financial Supervisory Service, which mandates all domestic cryptocurrency exchanges to adopt a unified, strict system for delaying withdrawals.
The aim is to prevent a surge in voice phishing scams that rely on speed.