SOUTH KOREA Law and Practice Contributed by: Wooyoung Choi, Suhhee Han, Seonghwan Ju and Matt Younghoon Mok, Lee & Ko
A review of the definitions of stablecoins under each bill shows some variation. The Min Byung-deok Bill limits stablecoins to those pegged to fiat currency. The Lee Kang-il and Kim Jae-seop Bills define sta- blecoins more broadly as digital assets whose value is linked to “currency or assets”. The Choi Bo-yoon Bill also requires linkage to “fiat currency, real-world assets, or equivalent external value.” Overall, the sta- blecoins currently being discussed in Korea’s legisla- tive process are predominantly those pegged to fiat currency or other identifiable underlying assets. 6.2.2 Stablecoin Regulation Under the current Korean legal framework, stable- coins are generally included within the definition of “virtual assets” and are therefore subject to the regula- tions applicable to virtual assets. Accordingly, where a person engages in the business of trading, custody, management, brokerage, intermediation, or agency services relating to stablecoins, such person may be regarded as a VASP and become subject to obliga- tions including VASP registration and AML compli- ance requirements. For reference, as discussed in 6.2.1 Fiat Currency and Algorithmic Stablecoins , several legislative bills aimed at establishing a regulatory framework for stablecoins have been submitted to the National Assembly. It is therefore expected that a dedicated regulatory regime for stablecoins will be introduced in the future. Most of these proposed bills include regulations concern- ing stablecoin issuers, such as entry requirements, redemption obligations, reserve asset requirements, and other business conduct regulations. 6.2.3 Backing Assets The bills currently submitted to the National Assem- bly’s Strategy and Finance Committee generally include common provisions requiring stablecoin issu- ers to maintain redemption reserves or reserve assets to ensure fulfilment of their redemption obligations. For example, in the bills proposed by Choi Bo-yoon, Ahn Do-geol, and Kim Jae-seop, redemption reserves or reserve assets must consist of assets denominated in the same legal currency, including Bank of Korea- issued banknotes and coins, demand deposits held with financial institutions such as banks, and govern-
ment securities (national bonds, local government bonds, and special bonds) with a maturity of one year or less, as well as other similarly safe assets. The value of such reserve assets must be at least equal to the outstanding amount of the issued stablecoins. These reserve assets must be held in custody at finan- cial institutions such as banks, segregated from the issuer’s proprietary assets. In addition, such reserve assets are subject to protection measures, including a prohibition on set-off and seizure. By contrast, the bill proposed by Kim Hyun-jung dif- fers in that it allows additional eligible reserve assets, including certain financial investment products such as collective investment schemes or other investment instruments that mature within three months of acqui- sition, as prescribed by Presidential Decree. Since these bills delegate detailed requirements regarding reserve assets to Presidential Decrees, it will be necessary to closely monitor the subsequent implementing regulations following enactment. 6.2.4 Special Considerations The proposed DABA currently pending before the National Assembly includes provisions addressing the systemic risk of stablecoins (referred to as “value- stable digital assets”) as follows. Park Sang-hyuk Bill This proposal provides that, taking into account the impact on financial stability and user protection, cer- tain “material value-stable digital assets” may be des- ignated. Issuers of such designated assets would be required to satisfy additional requirements prescribed by Presidential Decree, such as enhanced capital requirements and other prudential measures. Ahn Do-geol Bill This proposal empowers the FSC to issue emergency corrective orders against issuers of value-stable digi- tal assets where urgent action is deemed necessary to ensure user protection, sound market order, and financial stability.
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