Crypto News – South Korea to Implement Foreign Exchange Rules for Stablecoins

Crypto News – South Korean Government Reviews Stablecoin Transactions Amid Global Use

Crypto News – On October 8, South Korea’s Ministry of Economy and Finance announced plans to apply foreign exchange regulations to cross-border transactions involving dollar-pegged stablecoins. This initiative aims to ensure the soundness of stablecoin transactions amid the growing use of these digital assets in both local and global contexts.

Expanding Functions of Stablecoins

The government highlighted that stablecoins are not only utilized within the crypto ecosystem for transactions and exchanges but are also increasingly used for international transfers. This expansion necessitates the establishment of different regulatory frameworks tailored to the unique functionalities of stablecoins in cross-border settings.

Consultation with International Regulators

The Financial Services Commission (FSS), South Korea’s primary financial regulator, will prioritize discussions about stablecoins during the second legislative phase of the country’s Virtual Asset User Protection Act. The FSS plans to consult with regulators from other jurisdictions, including Japan and the European Union, to align its stablecoin regulations with international standards. However, no specific timeline for these consultations has been provided.

Initial Focus on Won-Pegged Tokens

Stablecoin regulations in South Korea will start with a framework for issuing won-pegged tokens. This legal structure will be established first before extending to foreign currency stablecoins, indicating a phased approach to regulatory implementation.

Learning from International Precedents

In 2022, Japan implemented new rules governing stablecoins following the collapse of Terra, which included a ban on stablecoin issuance by non-banking institutions. This ban was lifted in 2023, showcasing a responsive regulatory landscape. Similarly, the European Union’s Markets in Crypto-Assets Regulation, effective from June, has compelled crypto exchanges to delist non-compliant stablecoins, highlighting a trend towards stricter oversight globally.

Strengthening User Protection in South Korea

In conjunction with these new regulations, South Korea has intensified its measures to protect crypto users. The Virtual Asset Protection Act, which came into effect on July 19, mandates that virtual asset service providers (VASPs) implement stricter measures to safeguard user assets. These laws require VASPs to secure insurance against hacks and malicious attacks and to segregate user assets from exchange tokens while maintaining customer deposits in banks. Additionally, the law stipulates regular reviews of token listings on exchanges.

Consequences for Non-Compliance

The South Korean government is prepared to impose severe penalties on violators of these regulations, which include substantial fines and potential jail sentences that could be three to five times the amount of illegally obtained profits.

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