South Korea Considers Stablecoin Regulations for Cross-Border Transactions

Key Takeaways

• South Korea’s Financial Services Commission will prioritize stablecoin regulation in the second phase of the country’s Virtual Asset User Protection Act.
• Initial regulatory efforts will focus on creating a system for issuing stablecoins pegged to the Korean won.

The South Korean Ministry of Economy and Finance is evaluating new measures to regulate cross-border transactions involving stablecoins and other virtual assets. The ministry highlighted that while stablecoins are currently used mainly within the cryptocurrency ecosystem, they could become more prominent in cross-border payments and transactions, linking the digital economy with the real economy.

In line with this, South Korea’s Financial Services Commission (FSS), the nation’s top financial regulator, will prioritize stablecoin regulation in the second phase of the country’s Virtual Asset User Protection Act. The FSS intends to collaborate with international regulators, including those from Japan and the European Union, although the timeline for these discussions remains unspecified.

As per local media reports, initial regulatory efforts will focus on creating a system for issuing stablecoins pegged to the Korean won. This legal framework will be established first, laying the groundwork for expanding regulations to include foreign currency-pegged stablecoins later on.

The ministry views these steps as vital to ensuring that stablecoins can be safely used in cross-border financial transactions, potentially boosting their role in the broader economy. The country has imposed stricter regulations on virtual asset sector in recent months. On July 19, its Virtual Asset Protection Act came into effect in the country, compelling virtual asset service providers (VASPs) to frollow stringent rules.

In August 2024, crypto exchanges including Upbit, Bithumb, and Coinone had to pay a supervisory charge as part of the recently imposed Virtual Asset User Protection Act. In compliance with the Act, this action places crypto exchanges under the purview of the Financial Supervisory Service (FSS’s)  inspection authority.

The contribution rate, depending on the preceding fiscal year’s operational revenue, determines these operators’ supervisory contributions. Major provisions of the act included protecting users’ deposits and virtual assets, regulating unfair trading activities and granting financial regulators authority to sanction virtual asset service providers