South Korea's governing Democratic Party has introduced the 'Digital Asset Basic Act', a proposed legislation that aims to establish a robust legal framework for digital assets. This framework encompasses issuance, trading, custody, and supervision of digital assets. The proposal recognizes the growing significance of digital assets as a key medium connecting the real economy and financial markets, and thus defines a category of value-linked digital assets that require issuer authorization, refund reserves, and redemption obligations.
The proposed legislation has been introduced amidst stalled negotiations on the Digital Asset Basic Act, which were hindered by disagreements between regulators over the issuance of won-pegged stablecoins. The Bank of Korea had suggested that only banks with a 51% ownership stake should be authorized to issue stablecoins, while the Financial Services Commission argued that this could stifle innovation.
The new proposal seeks to 'establish a foundation for Korea to lead the global digital financial order' by introducing stringent requirements for entities seeking to issue digital assets, including obtaining approval, meeting capital thresholds, and having operational capacity and reserve plans in place. Furthermore, the legislation would impose licensing, registration, and reporting requirements on digital asset businesses, including trading, brokerage, custody, and advisory services. It would also establish rules on disclosures, internal controls, and market conduct, prohibiting unfair trading practices such as market manipulation and the use of non-public information.
The proposal also 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. Additionally, it highlights the need for a comprehensive framework covering issuance, disclosure, and market structure, as the current system primarily focuses on investor protection. This proposal follows the introduction of new rules by the Financial Services Commission and Financial Supervisory Service, which require domestic cryptocurrency exchanges to adopt a unified system for delaying withdrawals in order to combat voice phishing scams.