Legislation on the Basic Act on Digital Assets (the second-phase virtual asset law), which would bring virtual assets including stablecoins into the regulatory system, is being delayed by controversy over capping controlling shareholders' equity stakes in virtual asset exchanges. Discussions on allowing listed companies to trade virtual assets and introducing spot exchange-traded funds (ETFs), to be taken up after the second-phase law, are at a standstill.
According to the financial sector on the 25th, the Financial Services Commission's submission of the second-phase virtual asset law to the National Assembly, scheduled for this month, has been tentatively postponed. Financial Services Commission Chair Lee Eog-weon said by the end of last year that the second-phase law would be prepared, but differences among the government, industry, and political circles pushed it into the new year.
The core of the second-phase law is to institutionalize the issuance and distribution of virtual assets, including stablecoins, in Korea. Listings and delistings of virtual assets are also expected to be governed not by exchange autonomy but by standards equivalent to the Financial Investment Services and Capital Markets Act.
The key point of contention is who issues won-pegged stablecoins. Bank of Korea Governor Rhee Chang-yong argues that stablecoins should be issued mainly by banks to prevent side effects. The industry countered that businesses authorized by the financial authorities should also be able to issue stablecoins. The financial authorities are likewise focusing on an "authorization system." The Financial Services Commission (FSC) is coordinating views between the Bank of Korea and the industry to devise an alternative, but there has reportedly been no progress.
Another issue is whether the second-phase law will include provisions easing the separation between finance and virtual assets so that financial firms and big tech can enter the virtual asset market. The industry believes easing this separation is essential for innovation that combines finance and virtual assets.
The financial authorities, after gathering opinions, settled on a consortium with banks holding a majority equity stake to issue stablecoins. However, the legislation has been stalled again as criticism mounted that a plan to limit exchange controlling shareholders' equity stakes to 15%–20% is overly restrictive.
The People Power Party has also decided to introduce a separate second-phase virtual asset bill through a special committee. Full-scale deliberations in the National Assembly are expected to proceed only after the People Power Party's bill is introduced.
With the second-phase law delayed, matters such as ETFs and listed companies' virtual asset transactions have not even begun to be discussed. Launching ETFs requires virtual assets to be recognized as underlying assets, so implementation of the second-phase law must come first. Allowing corporate transactions was slated to be piloted for about 3,500 corporations in the second half of last year, but it has run into setbacks. The financial authorities plan to review allowing transactions after introducing the second-phase law.
The industry says growth has stalled because regulatory gaps have prevented the financial sector, including financial firms and big tech, from entering the market. The United States allowed ETFs in Jan. 2024 and passed a stablecoin regulatory bill in June last year. Some financial institutions currently use stablecoins for payments, settlements, and clearing. The European Union (EU) will introduce Markets in Crypto-Assets (MiCA), which standardizes virtual asset regulation, in Dec. 2024 and is pursuing follow-up legislation.