South Korea Delays Crypto Regulation as Stablecoin Rules Remain Stalled

South Korea’s Crypto Regulation Delayed as Stablecoin Rules Face Deadlock

South Korea's next significant step towards a comprehensive regulatory framework for cryptocurrencies has been postponed until 2026. This delay is primarily due to disagreements among regulators regarding the regulation of stablecoin issuance.

Key Takeaways:

The implementation of South Korea’s comprehensive crypto law is now postponed to 2026 due to disagreements on who should be permitted to issue stablecoins.
Proposals for stablecoin regulations include requirements for issuers to maintain 100% of reserves in banks.
The proposed legislation would enhance compliance standards throughout the crypto industry.

There is broad consensus among authorities on the need for strict investor protection mechanisms. However, ongoing disputes over the eligibility criteria for stablecoin issuers are hindering legislative advancements.

A report from Yonhap News Agency outlines the Financial Services Commission's (FSC) efforts to draft a comprehensive Digital Asset Basic Act aimed at providing strong protections for users of stablecoins.

Regulatory Proposals for Stablecoin Issuers

Under the current proposal, all stablecoin issuers would be mandated to keep reserve assets fully in bank deposits or government bonds, with 100% of these reserves placed in the custody of licensed custodians such as banks.

Regulators argue that this measure will protect investors from potential losses if a stablecoin issuer defaults.

By keeping reserves separate and placing them under third-party custody, authorities intend to minimize the risks that emerging from inadequately backed digital assets, as seen in previous market downturns.

In addition to stablecoin-specific regulations, the proposed bill aims to elevate compliance standards across the crypto landscape. Digital asset service providers would need to adhere to disclosure mandates, advertising regulations, and customer protection standards similar to those in traditional finance.

If cryptocurrencies suffer hacks or system failures, companies could be held accountable for damages, even if they did not act negligently—reflecting the liability standards typically found in online retail sectors.

The draft legislation may also revive domestic fundraising for tokens. Initial coin offerings (ICOs), which have been prohibited in South Korea since 2017, could be permitted for local projects meeting strict disclosure and risk management standards, indicating a significant policy shift.

Despite the consensus on investor safety, the regulation of stablecoins remains a contentious issue.

The Bank of Korea advocates for a structure where stablecoins can only be issued by bank-controlled consortia, proposing that lenders retain a minimum 51% ownership stake. They assert that this approach is critical for safeguarding monetary stability and avoiding systemic risks.

Conversely, the FSC has resisted the idea of a fixed ownership requirement, suggesting that restricting issuance to bank-led models could hinder technological progress and innovation in payments and digital finance.

Governance Debates Continue

There is also a divergence of opinion regarding governance. The Bank of Korea prefers the establishment of a separate licensing committee specifically for overseeing stablecoins.

In contrast, the FSC argues that an additional governing body is unnecessary, asserting it already works as a statutory regulator in conjunction with the central bank and the Ministry of Economy and Finance.

Recently, South Korea announced it is intensifying efforts to combat cryptocurrency-related financial crimes, expanding its travel rule requirements. The new regulation now encompasses transactions under 1 million won ($680), which previously allowed users to evade identity checks by splitting payments into smaller amounts.