South Korea is fast approaching a turning point in its regulation of digital assets as lawmakers and financial authorities are reportedly working on a plan to restrict the issuance of Korean-won-pegged stablecoins to consortia in which commercial banks hold a majority stake.
The plan, which was reportedly discussed in a closed meeting that involved lawmakers from the ruling Democratic Party of Korea (DP), officials from the Financial Services Commission (FSC), and representatives of the banking industry on December 1, comes as part of the ongoing effort to enact a comprehensive Digital Asset Basic Act, which will regulate stablecoins and other digital assets and their issuance.
Banks lead, fintechs follow in the proposed consortium
Under the new framework, stablecoin issuers will take the form of a consortium, with banks holding at least 51% of the shares.
Speaking after the meeting, Kang Junhyun, the Democratic Party’s secretary of the National Assembly’s Political Affairs Committee, confirmed what was discussed in the meeting, stating, “The controversial issue of who will issue stablecoins has been resolved in a ‘consortium format’ by coordinating the positions of the Bank of Korea, the Financial Services Commission, and the banking industry.”
South Korea’s regulatory and political deadline
Lawmakers went on to impose a deadline on the government, demanding that the government submit a draft bill containing the main framework by December 10.
Kang stated that “if the government proposal is not submitted by this deadline, we will push forward with legislation initiated by lawmakers through the Political Affairs Committee.”
According to statements made by Kang, lawmakers are going to quickly share and propose the finalized bill and then go through a public debate process with the Digital Asset Task Force within the Democratic Party.
He stated, “Even if discussions are possible within this year, the actual passage of the bill will likely happen in January next year. I am not sure what the opposition (People Power Party) thinks, but the discussion process seems likely to take some time.”
Diverging views as consortium plan is not yet finalized
Last month, the country’s central bank, Bank of Korea (BOK), warned that non-bank stablecoin issuers could threaten monetary policy, deposit-protection frameworks, and financial stability.
It argues that such entities would essentially be acting like narrow banks, where they issue currency and also offer payment services. It seems the consortium arrangement is an answer to the apex bank’s concerns.
However, the stablecoin ecosystem, including some fintech advocates and industry stakeholders, says that limiting issuance to banks may hinder innovation and competition.
They argue that strictly bank-dominated stablecoin issuance would reduce such coins to little more than digital bank deposits, impacting potential use cases, from cross-border payments to decentralized finance applications.
Moreover, even after the December 1 meeting, the FSC issued a statement noting that “no decision had been finalized” regarding the consortium plan, indicating that the regulatory framework is yet to get the consensus of all parties involved. Attention will now be on the government’s response to the ultimatum the lawmakers have given it.