On Wednesday, the ruling Democratic Party of South Korea unveiled a proposed 'Digital Asset Basic Act' aimed at establishing a robust legal framework for digital assets, encompassing their issuance, trading, custody, and supervision. According to the proposal, 'digital assets are increasingly becoming a crucial medium that connects the real economy to financial markets.' 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 redemption obligations. The introduction of this proposal comes at a time when negotiations over the Digital Asset Basic Act have stalled since the beginning of the year due to disagreements between regulators over who should be authorized to issue stablecoins pegged to the Korean won. The Bank of Korea has maintained that only banks with a 51% ownership stake should be allowed to issue stablecoins, whereas the Financial Services Commission has 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 would need to obtain approval and fulfill specific requirements, including meeting capital thresholds, demonstrating operational capacity, and establishing reserve plans. The legislation would also introduce a licensing system, registration requirements, and reporting obligations for digital asset businesses, including trading, brokerage, custody, and advisory services.
Furthermore, it would establish rules regarding 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 suggests the creation of a digital asset committee to review and coordinate policy, 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 but lacks a comprehensive framework that covers issuance, disclosure, and market structure.
This proposal follows the announcement of new regulations by the country's Financial Services Commission and Financial Supervisory Service, which mandate all domestic cryptocurrency exchanges to adopt a unified, stringent system for delaying withdrawals in an effort to combat voice phishing scams that rely on rapid transactions.