South Korea’s financial regulator, the FSC, will oversee stablecoin usage and introduce a won-pegged asset with the second stage of its crypto framework unfolding.
The Government of South Korea will regulate cross-border stablecoins by using its foreign exchange laws. Specifically, US dollar-based stablecoins would fall under this new action. The Ministry of Economy and Finance has made it known that it would be taking measures to oversee stablecoin transactions.
Since stablecoins are used to facilitate easy cross-border transactions beyond transacting and trading within the crypto realm, the ministry wants to add new rules to protect users during global transfers. “Currently, stablecoins are mainly used as a means of transaction and exchange in the virtual asset ecosystem,” the government said while adding, “They are also used in cross-border transactions, and their functions may be expanded to include payment and transaction methods in the real economy.”
The Financial Services Commission (FSC), South Korea’s premier financial regulator, has reserved the stablecoin issue for the second legislative stage of the South Korean Virtual Asset User Protection Act.
It mentioned, “We plan to consult with relevant ministries by referring to legislative examples such as Japan and the European Union (EU).” Japan banned non-banking entities from dealing with stablecoins immediately after the Terra collapse in June 2022. However, the ban was lifted in 2023. The EU’s Markets in Crypto Asset framework is yet to take full effect. Nevertheless, its stablecoin rules have already taken effect, and issuers need to be licensed in one of its member states to continue their operations. Exchanges and service providers must delist assets from unlicensed issuers by the turn of the calendar.
The South Korean ministry will also kick off a won-pegged stablecoin and make it the first point of action with its stablecoin legislation. “Stablecoin regulation will begin with the establishment of a won-linked coin issuance system,” said a government official. Once the rules are clear around a South Korean stablecoin, they will be expanded to accommodate US dollar-pegged ones and others.
South Korea Launched Its Crypto Rules in July
In July, the FSC launched its Virtual Asset User Protection Act framework in the country to industry insiders stating that the legislation is strict. The main premise of the framework is to prevent service providers and crypto companies from taking advantage of South Korean users. It introduced channels the government and the regulator will use to oversee and prevent fraud, market manipulation, and more. Furthermore, it enforces service providers to better take care of user funds via choosing custody solutions, getting insured, and preventing the co-mingling of user and business funds.
