SOUTH KOREA Law and Practice Contributed by: Jongbaek Park, Seungil Hong, Seyeong Im and Eric Jeong, Bae, Kim & Lee LLC
instruments could effectively function as channels for the circulation and settlement of virtual assets, raising concerns that the regulatory frameworks of the EFTA and the AML Act could be circumvented. 10.12 NFTs The FSC has issued guidelines for determining whether NFTs qualify as virtual assets. Under these guidelines, NFTs must be assessed first to deter - mine whether they constitute “securities” under the FSCMA. If they do not, the next step is to determine whether they fall under the category of “virtual assets” as defined in the VAUPA. Regardless of their form or underlying technology, if the rights acquired by the investor are considered to constitute securities under the FSCMA, the FSCMA will apply. If an NFT does not qualify as a security under the FSCMA, it must then be determined whether it quali - fies as a virtual asset. In making this determination, the following factors are considered: • whether the NFT is issued in large quantities or as part of a large-scale series and is highly inter - changeable; • whether it is divisible, thereby significantly reducing its uniqueness; • whether it can be used, directly or indirectly, as a means of payment for specific goods or services; and • whether it can be exchanged between unspecified parties for virtual assets or used in connection with other virtual assets for the payment of goods or services. If any of these criteria are met, the NFT will be regu - lated under the VAUPA as a virtual asset. 10.13 Stablecoins In Korea, there is not yet a single, comprehensive law in force that fully regulates stablecoins. Howev - er, alongside ongoing discussions on expanding the regulatory framework for virtual assets in stages, sig - nificant policy debate is taking place among the Bank of Korea, financial regulators and the private sector,
particularly with respect to qualification of issuer of stablecoins. From a legislative perspective, the VAUPA currently in force focuses primarily on the regulation of virtual asset exchanges and the protection of users and does not directly regulate the issuance structure of stablecoins. Accordingly, the National Assembly and the government are discussing follow-up legislation – often referred to as the “second-phase virtual asset legislation” – that would comprehensively regulate the issuance and distribution of digital assets, includ - ing stablecoins, as well as requirements relating to reserve assets. In this process, stablecoins are being treated not merely as virtual assets, but as instruments that may in practice function as means of payment or money-like instruments. As a result, consistency with existing financial laws, such as the EFTA, FSMCA and FETA, has emerged as a key issue. In particular, with respect to KRW-pegged stablecoins, there is a grow - ing consensus that matters such as the composition of reserve assets for at least 100% of issuance amount, the guarantee of redemption rights, management of outstanding issuance amounts, and user protection mechanisms must be clearly prescribed by law. In this regard, the Bank of Korea has maintained a relatively clear and consistent position on stablecoins. The Bank of Korea has expressed concern that the widespread use of KRW-linked stablecoins could undermine the effectiveness of monetary policy, weak - en the stability of the payment and settlement system, and give rise to systemic risks in times of financial stress due to large-scale redemption demands (bank run). For these reasons, the Bank of Korea has taken the position that issuers of KRW-based stablecoins should, in principle, be limited to the central bank or, at a minimum, to strictly licensed financial institutions such as banks. Furthermore, it has advanced the view that CBDC, rather than private stablecoins, represents a more desirable alternative. By contrast, participants in the financial industry and the fintech sector, and certain policy experts, have argued that restricting stablecoin issuance solely to the central bank or to banks could cause Korea to fall behind in terms of technological innovation and global competitiveness. In particular, in the areas of global
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