South Korea’s Stablecoin Revolution Hits Regulatory Roadblocks - What’s Next for Digital Finance?

Seoul's crypto ambitions face reality check as stablecoin framework stalls

The Regulatory Maze

South Korean financial authorities are discovering that regulating stablecoins is like herding cats—every time they think they've got a handle on it, another complication pops up. The Financial Services Commission finds itself caught between innovation-hungry crypto firms and traditional banking's cautious approach.

Market Impact

Local exchanges ready to launch won-backed stablecoins now face indefinite delays. Trading volumes could take a hit as investors seek clearer jurisdictions—because nothing says 'stable' like regulatory uncertainty. Meanwhile, global stablecoin giants watch from the sidelines, calculating when to make their move.

The Banking Conundrum

Traditional banks argue for strict reserve requirements while crypto startups push for flexibility. It's the classic battle: old money versus new technology, with regulators stuck playing referee. The irony? Banks want crypto-level returns without the crypto-level risk—typical finance sector logic.

Global Context

While South Korea deliberates, Japan and Singapore are already implementing their stablecoin frameworks. The window for Seoul to become Asia's digital asset hub narrows with each delayed committee meeting and revised draft proposal.

As South Korea's regulators learn the hard way: in crypto, the market moves faster than bureaucracy—and patience isn't exactly a stablecoin's strong suit.

TLDR:

• South Korea debates stablecoin rules, with banks pushing for control.
• Bank of Korea insists banks must lead stablecoin issuance.
• Tech giants like Naver advance stablecoin projects despite delays.
• Regulatory standoff delays South Korea’s stablecoin framework rollout.
• South Korea lawmakers review bills for stablecoin regulation amid debate.

South Korea is facing challenges in finalizing its regulatory framework for locally issued stablecoins. The country’s central bank, the Bank of Korea (BOK), and financial regulators have reached a standstill over the role of banks in stablecoin issuance. The dispute has led to delays in the expected rollout of a stablecoin regulatory framework, which was anticipated to be introduced by the end of  2025.

BOK’s Stance on Bank Involvement

The Bank of Korea (BOK) insists that any stablecoin issuer should be majority-owned by a consortium of banks. According to the BOK, banks should own at least 51% of the issuer to secure regulatory approval. The central bank argues that this structure will mitigate financial risks and ensure compliance with anti-money laundering protocols.

The BOK’s position stems from its concerns over financial and foreign exchange stability. It believes that only banks, with their regulatory oversight and experience, can adequately handle the potential risks of stablecoins. Moreover, the BOK has cautioned against allowing non-bank entities to lead stablecoin issuance, suggesting that such a MOVE could undermine existing financial regulations.

Disagreements Over Non-Bank Participation

While the Bank of Korea holds firm on its position, other regulators are open to a more inclusive approach. The Financial Services Commission (FSC) has shown a willingness to allow a broader range of industry players to participate in stablecoin issuance. This includes technology firms, which have increasingly shown interest in the stablecoin market.

Some experts argue that allowing tech companies to issue stablecoins could foster innovation and competition. However, concerns about potential monopolies and the concentration of financial power in non-bank entities remain a key issue. The debate continues as the country works to establish a clear and balanced regulatory framework.

Three Bills Under Review by South Korean Lawmakers

South Korean lawmakers are currently reviewing three separate bills aimed at regulating stablecoin issuance. These bills were submitted by both the ruling Democratic Party of Korea (DPK) and the opposition People Power Party (PPP). Each bill proposes a minimum capital requirement of 5 billion won ($3.4 million) for stablecoin issuers.

Key areas of disagreement remain. One significant point of contention is whether stablecoin issuers should be permitted to offer interest on holdings. Some bills, such as those from the DPK, advocate for allowing interest payments, while others seek to prohibit them, citing concerns about the impact on financial stability.

Despite these disagreements, progress continues in the National Assembly, with lawmakers aiming to address these contentious issues in the coming months. As the bills are reviewed, the future of stablecoin regulation in South Korea hangs in the balance.

Tech Giants Push Ahead with Stablecoin Initiatives

In the midst of regulatory uncertainty, South Korean tech giants are moving ahead with their stablecoin projects. Naver, one of the country’s largest tech firms, is preparing to launch a stablecoin wallet in collaboration with Hashed and the Busan Digital Exchange. The initiative highlights the growing interest in stablecoins and the need for clearer regulatory guidance.

Additionally, a potential merger between Naver Financial and Dunamu, the operator of the Upbit exchange, could further accelerate the development of stablecoin-related services in South Korea. As regulatory discussions continue, these companies are positioning themselves to lead the charge in the stablecoin space.

South Korea’s regulatory framework for stablecoins remains in limbo as the central bank and other regulators continue to debate the role of banks and non-bank entities. With lawmakers reviewing several bills, the future of stablecoin regulation in South Korea is far from settled.