South Korea Stablecoin Regulation Faces Delay

South Korea is experiencing delays in creating a clear legal framework for stablecoins. This delay is slowing down progress on the “Digital Asset Basic Act,” a key law aimed at improving the oversight of the fast-changing crypto market in the country.

According to the Yonhap news agency’s report, the Financial Services Commission (FSC) has proposed strict rules for stablecoin issuers. These rules focus on managing reserves, providing disclosures, and protecting investors. However, lawmakers and regulators have not yet agreed on who should be eligible to issue stablecoins. 

Key Provisions of South Korea’s Stablecoin Proposal

The FSC’s proposal requires stablecoin issuers to keep their reserve assets only in bank deposits or government bonds. This cautious method aims to reduce risk and ensure stablecoins are fully backed by safe, liquid assets.

The draft law also says that issuers must store 100% of their reserve assets with licensed custodians, like banks. This separation of assets from the issuer’s own finances helps protect investors if a stablecoin issuer goes bankrupt. Notably, these rules follow a global trend that focuses on transparency, solvency, and consumer protection in the stablecoin industry.

South Korea’s regulations aim to prevent financial problems that could arise from poorly managed digital asset projects. Although there has been progress on technical rules, the law is stuck because there are disagreements on issuance. 

Some policymakers want to limit issuance to banks or strictly regulated financial institutions. Others believe that fintech and crypto-focused companies should also be included to encourage innovation and competition.

It is worth noting that this disagreement is the main hurdle in finalizing South Korea’s stablecoin regulations. If a compromise isn’t reached soon, the country may fall behind other jurisdictions that are rapidly advancing their digital asset laws.

South Korea to Introduce New Crypto Lending Rules

In September, South Korea’s FSC introduced new regulations for crypto lending platforms. As reported by TheCoinRise, the country has issued a ban on leveraged crypto loans. This means platforms cannot offer leveraged loans anymore.

To stop unfair lending practices, the FSC has set a limit on interest rates for crypto loans at 20%. This helps create a fairer lending environment for consumers. Lenders also have limits on the types of cryptocurrencies they can use. 

Likewise, crypto exchanges must work with the Digital Asset eXchange Alliance (DAXA) to ensure that new borrowers complete online trading and pass a suitability test. These steps help ensure that individuals understand the risks and workings of crypto lending before they take part.

South Korea Issues New Crypto Investment Guidelines

Similarly, South Korea’s FSC issues new guidelines for crypto investment. This move signals the country’s intention to end the de facto ban on institutional investment in digital assets. Meanwhile, South Korea is progressing towards establishing a complete regulatory framework for crypto.

Recall that South Korea introduced its first crypto laws in July 2024 after a draft bill was approved in May 2023.