The representative blockchain corporation in Korea, Hashid, has recently established a branch in Abu Dhabi, United Arab Emirates (UAE). Hashid described Abu Dhabi as "a special space that provides the most friendly and clear guidance for virtual asset corporations" while forming a partnership with the Abu Dhabi incubator Hub71. The UAE government is friendly towards virtual assets to the extent of allowing payments using them. As a result, virtual asset corporations from around the world are heading to Abu Dhabi.
Movements to tokenize assets and issue stablecoins are actively underway worldwide. Domestic corporations are also moving quickly. However, in Korea, there are no systems or regulations to foster virtual assets, making it difficult for corporations to advance their businesses. Consequently, since last year, major domestic fintech and blockchain corporations have been establishing subsidiaries in the Middle East, Hong Kong, and Singapore, or strengthening collaborations with local Web3 partners.
Corporations attempting to promote asset tokenization in Korea are facing legal uncertainties. Given the lack of regulation, they are cautious about incurring massive expenses, and pushing forward with business randomly could lead to sanctions from financial authorities. Under these circumstances, corporations are opting to expand overseas rather than advancing their businesses domestically.
◇ U.S. 'Project Crypto', European 'MiCA' becoming specific regulations in each country
The level of virtual asset regulation in Korea is at an infancy stage. The most advanced regulations on virtual assets and stablecoins are in the United States. Since the second term of the Trump administration began, the U.S. launched a joint "Project Crypto" task force (TF) in June with the Securities and Exchange Commission and the Commodity Futures Trading Commission, initiating efforts to establish a market-based regulatory framework.
The TF plans to push through the restructuring of the virtual asset classification system, the establishment of investor protection measures, and the expansion of consumer accessibility in three phases. Furthermore, with the passage of the GENIUS Act, the first federal stablecoin regulatory bill in the U.S., stablecoin issuers are required to maintain collateral assets, conduct regular audits, and ensure transparent reporting, while also strengthening anti-money laundering and consumer protection standards.
The European Union (EU) announced the world's first comprehensive virtual asset regulation law, the "Regulation on Markets in Crypto-assets (MiCA)," in 2023. This law includes provisions for issuing licenses to virtual asset service providers (CASP) and applying collateral asset holdings and anti-money laundering (AML) and consumer protection standards to stablecoin issuers. Singapore and Hong Kong are specifying regulations on over-the-counter (OTC) transactions, investor protection, and trading transparency to align with the regulatory trends led by the Financial Action Task Force (FATF).
Japan is a country that is quickly preparing for virtual asset regulation. Since 2022, Japan has mandated financial registration for virtual asset exchanges and stablecoin issuers by the Financial Services Agency (FSA) and strengthened anti-money laundering and consumer protection standards. Notably, Japan has stable and clear regulations regarding stablecoins, and the yen-based stablecoin JPYC is expected to be approved soon.
◇ Last year in Korea, only the basic law was enacted
In 2023, Korea mandated real-name account issuance and Information Security Management System (ISMS) certification for virtual asset exchanges, and since July of last year, the first phase of the Virtual Asset User Protection Act has been implemented. However, the first phase law only contains basic definitions of virtual assets and investor protection, and there are criticisms that comprehensive regulations regarding transactions and asset protection are lacking, including a lack of anti-money laundering (AML) and Know Your Customer (KYC) standards.
In the National Assembly, a "Digital Asset Basic Law" proposal by Democratic Party of Korea Representative Min Byeong-deok, stablecoin bills by Representatives Ahn Do-geol and Kim Eun-hye, and a forecast of a proposal for a Digital Asset Innovation Law by Representative Kang Jun-hyun have led to a "legislative rush." The Financial Services Commission is also expected to introduce a second phase legislation on virtual assets, including a virtual asset spot exchange-traded fund (ETF) and won-based stablecoin initiatives, in October. However, there are significant differences in details such as criteria and supervisory authorities for each bill, and ongoing disputes between the ruling and opposition parties, as well as jurisdictional coordination issues among ministries, are likely to hinder the passage of any content this year.
The 'Virtual Asset Committee', which was launched as an advisory body for financial authorities, has also effectively not functioned after several discussions earlier this year. This is due to the vacancy of the position of the Deputy Chairperson of the Financial Services Commission, which is a standing chairperson, until last month, and delays in the restructuring of the financial authorities under the new government. Discussions on subsequent industry-specific laws proposed since July have also not gained significant momentum.
Discussions regarding security tokens (STO), one of the virtual assets needed in the tokenization era, are also adrift, centered around the National Policy Committee. STO refers to tokens with characteristics of securities among tokenized assets, and thus has more stringent legal and regulatory requirements. Regulations for STOs have been established in the U.S., Europe, and Singapore.
However, in Korea, where there is no regulation, it is currently impossible for corporations to raise funds or tokenize assets through STOs. Although there have been no disagreements between the ruling and opposition parties regarding STOs, the issue repeatedly falls behind priorities and has failed to pass on multiple occasions this year. Securities companies that had high hopes for the institutionalization of STOs have formed teams related to platform development, but their expectations have long cooled, leading to disappointment that they have only poured in expenses.
Kim Gap-rae, a senior researcher at the Capital Market Research Institute, noted, "The virtual asset industry and academia are quickly making policy proposals, but it is frustrating that they have repeatedly failed to pass legislation in the National Assembly," adding, "Even the core issue of token securities for stablecoins was discussed and proposed in 2023, but there has been no progress."