The ruling Democratic Party of South Korea has introduced a proposed 'Digital Asset Basic Act' that aims to establish a comprehensive legal framework for digital assets, covering aspects such as issuance, trading, custody, and supervision. The proposal recognizes digital assets as a crucial link between the real economy and financial markets. It categorizes value-linked digital assets, including those tied to fiat currencies or real-world assets, as requiring authorization from issuers, refund reserves, and redemption obligations.
This proposal emerges amidst stalled negotiations on the Digital Asset Basic Act, which began earlier this year due to disagreements between regulators over the issuance of won-pegged stablecoins. The Bank of Korea advocated for banks with 51% ownership to be the sole authorized issuers of stablecoins, while the Financial Services Commission cautioned that this could stifle innovation.
The proposed legislation seeks to 'establish a foundation for Korea to lead the global digital financial order.' To issue digital assets, entities must obtain approval and meet specific requirements, including capital thresholds, operational capacity, and reserve plans. The bill introduces licensing, registration, and reporting requirements for digital asset businesses, including trading, brokerage, custody, and advisory services. It also establishes 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 includes the creation of a digital asset committee to review and coordinate policy, as well as national basic and implementation plans for the sector.
It highlights that South Korea's current system is primarily focused on investor protection but lacks a comprehensive framework covering issuance, disclosure, and market structure. This proposal follows the announcement of new rules by the Financial Services Commission and Financial Supervisory Service, mandating all domestic cryptocurrency exchanges to adopt a unified, strict system for delaying withdrawals to combat voice phishing scams.