On Wednesday, the ruling Democratic Party of South Korea unveiled a draft of the 'Digital Asset Basic Act', aiming to establish a comprehensive legal framework governing the issuance, trading, custody, and supervision of digital assets. The proposal acknowledges the growing significance of digital assets as a crucial link between the real economy and financial markets.
It categorizes value-linked digital assets, including those pegged to fiat currencies or tangible assets, as requiring authorization from issuers, reserve requirements for refunds, and obligations for redemption. This move comes after negotiations for the Digital Asset Basic Act stalled earlier in the year due to disagreements between regulators over the issuance of stablecoins pegged to the Korean won. The Bank of Korea advocated for banks with a majority ownership to be the sole issuers of such stablecoins, while the Financial Services Commission raised concerns that this could stifle innovation. The proposed legislation seeks to 'lay the groundwork for Korea to spearhead 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 having reserve plans in place. The bill introduces a licensing system for digital asset businesses, covering trading, brokerage, custody, and advisory services, and mandates registration and reporting.
It also outlines rules for transparency, internal controls, and market conduct, prohibiting unfair trading practices such as market manipulation and the misuse of confidential information. Furthermore, the proposal suggests the establishment of a digital asset committee to oversee policy coordination and the development of national plans for the sector. It highlights that the current regulatory framework in South Korea primarily focuses on protecting investors but lacks a comprehensive approach to address issuance, disclosure, and market structure. This development follows the announcement by the Financial Services Commission and the Financial Supervisory Service of new regulations requiring all domestic cryptocurrency exchanges to implement a unified, stringent system for delaying withdrawals, aimed at combating voice phishing scams that exploit swift transaction speeds.