South Korean authorities consider approvals for domestic stablecoin issuers

On January 26, Bank of Korea Governor Lee Chang-young said that the authorities are allowing South Korean citizens to invest in virtual assets due to market pressure. However, he mentioned that financial regulators are considering creating a new registration system to enable domestic institutions to use virtual assets.

Speaking at the Asian Financial Forum in Hong Kong, Chang-young believes that tokenized deposits would be used more for domestic payments. In contrast, won-denominated stablecoins would be used for international transactions.

He stressed that stablecoins remain controversial in South Korea. He voiced concern that won-denominated stablecoins, particularly when paired with U.S. dollar stablecoins, could be used to circumvent capital flow control measures if they are introduced.

Additionally, he said that U.S. dollar stablecoins are easily accessible, frequently used, and have much lower transaction costs than using U.S. dollars directly.

Chang-young highlights the risks and challenges of stablecoin regulation

Chang-young stated that large-scale cash transfers may result from money flowing into U.S. dollar stablecoins when exchange rate changes trigger market expectations. Furthermore, he claimed that regulation is challenging because various non-bank institutions issue stablecoins.

He continued by stating that retail central bank digital currencies (CBDCs) do not offer significant advantages and that South Korea’s quick payment system is highly developed. Chang-young asserted that the central bank is deploying tokenized deposits and wholesale CBDCs concurrently with pilot programs to preserve a two-tier structure.

Chang-young also believes that loosening and streamlining rules will boost actual economic activity in the near future. Still, he warned against forgetting the consequences of the 2008 financial crisis and contends that reform shouldn’t turn into a contest to lower standards. He believes regulations should be tightened, not loosened, at least in the area of digital banking.

Governor Chang-young’s warnings help explain why progress on crypto legislation has stalled. Tech in Asia, a news outlet, reported on January 26 that South Korea has delayed the second phase of the virtual asset law, which aims to regulate digital assets such as stablecoins, amid disagreements over who should be allowed to issue them and how exchanges should be regulated.

This delay of the second-phase virtual asset began last year. On December 30, deep regulatory disagreements over stablecoin monitoring led South Korea to postpone its long-awaited revision of its digital asset system to this year. 

To create a thorough legal framework for cryptocurrency activity, the Financial Services Commission made the Digital Asset Basic Act. The law sought to establish no-fault liability, allowing operators of digital assets to be held accountable for user losses even in the absence of evidence of negligence. 

The Digital Asset Basic Act aims to improve compliance standards among exchanges and service providers by imposing stricter disclosure requirements and customer protection measures. However, authorities struggled to resolve disputes over control of reserves, enforcement authority, and stablecoin governance. As a result, the bill’s filing was postponed until 2026.

Regulators suggested mandating that issuers keep all of their reserves in government bonds or bank deposits, entirely entrusted to authorized custodians. The Bank of Korea argued that stablecoins should be issued only by bank-controlled consortia with at least a 51% ownership stake to preserve monetary stability.

As previously reported by Crptopoiltan, fixed ownership thresholds were, however, challenged by the Financial Services Commission (FSC), which cautioned that they may marginalize tech companies and impede innovation in digital finance.

Regulatory disputes stall South Korea’s stablecoin legislation

The Financial Services Commission’s filing with the National Assembly was supposed to be reviewed this month, but has been delayed again due to ongoing disagreements among government agencies, business stakeholders, and political organizations.

According to the report, essential questions remain whether banks or other approved companies should be the primary issuers of won-pegged stablecoins and whether regulations separating finance from virtual assets should be loosened to promote innovation.

Critics argue that the proposed 15%–20% shareholding limitations for exchange stockholders are too restrictive.

Discussions about virtual asset transactions by listed businesses and exchange-traded funds (ETFs) that rely on the law’s implementation have stalled due to the delay.

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