On Wednesday, the Democratic Party of South Korea unveiled a proposed 'Digital Asset Basic Act', aiming to establish a robust legal framework governing digital assets. This includes regulations on issuance, trading, custody, and supervision. The proposal acknowledges the increasing significance of digital assets as a crucial link between the real economy and financial markets. It categorizes value-linked digital assets, such as those pegged to fiat currencies or real-world assets, as requiring authorization from issuers, refund reserves, and redemption obligations.
The introduction of this proposal follows stalled negotiations on the Digital Asset Basic Act earlier in the year, which were hindered by disagreements between regulators over the issuance of stablecoins pegged to the Korean won. The Bank of Korea advocated for banks with a majority ownership of 51% to be the sole authorized issuers of stablecoins, while the Financial Services Commission expressed concerns that this could stifle innovation. The proposed legislation seeks to 'lay the groundwork for Korea to assume a leading role in the global digital financial order.' To issue digital assets under this proposal, entities must secure approval and fulfill specific requirements, including meeting capital thresholds, demonstrating operational capacity, and establishing reserve plans.
The bill also introduces licensing, registration, and reporting requirements for businesses operating in the digital asset space, including trading, brokerage, custody, and advisory services. Furthermore, it establishes rules on disclosure, internal controls, and market conduct, prohibiting unfair trading practices such as market manipulation and the use of non-public information. The proposal suggests the creation of a digital asset committee to oversee policy review and coordination, as well as the development of national basic and implementation plans for the sector.
It highlights that South Korea's current regulatory framework primarily focuses on investor protection, lacking a comprehensive structure that covers issuance, disclosure, and market organization. This proposal comes on the heels of the Financial Services Commission and Financial Supervisory Service announcing new rules requiring all domestic cryptocurrency exchanges to adopt a unified, stringent system for delaying withdrawals, aimed at combating voice phishing scams that exploit speed.