The ruling Democratic Party of South Korea has introduced a proposed 'Digital Asset Basic Act' that outlines a comprehensive legal framework for digital assets. This includes regulations for issuance, trading, custody, and supervision of digital assets.
The proposal categorizes value-linked digital assets, such as those pegged to fiat currencies or real-world assets, as requiring authorization from issuers, reserve requirements, and obligations for redemption. This development comes as negotiations for the Digital Asset Basic Act have stalled since the beginning of the year due to disagreements among regulators over who should be permitted to issue stablecoins pegged to the Korean won. The Bank of Korea advocates for banks with at least 51% ownership to be the sole entities authorized to issue stablecoins, while the Financial Services Commission warns that this could stifle innovation.
The proposed legislation aims to 'establish a foundation for Korea to lead the global digital financial order.' To issue digital assets, entities must secure approval and fulfill prerequisites including capital requirements, operational capabilities, and reserve plans. The bill introduces licensing, registration, and reporting obligations for digital asset businesses, including trading, brokerage, custody, and advisory services.
It also establishes rules for transparency, internal controls, and market conduct, including prohibitions on unfair trading practices like market manipulation and the use of confidential information. Furthermore, the proposal suggests the creation of a digital asset committee to review and coordinate policy, as well as national plans for the sector's basic and implementation frameworks. It highlights that South Korea's current system prioritizes investor protection but lacks a comprehensive framework that covers issuance, disclosure, and market structure. This proposal follows the announcement by the Financial Services Commission and the Financial Supervisory Service of new rules requiring all domestic cryptocurrency exchanges to implement a unified, stringent system for delaying withdrawals, aiming to combat voice phishing scams that exploit speed.