South Korea's financial regulator and central bank clash over stablecoin authority

The Financial Services Commission (FSC) and the Bank of Korea are disputing over the entity responsible for issuing won-pegged stablecoins. The clash has caused the government to delay submitting the Phase 2 Virtual Asset Bill, which the National Assembly expected to be submitted by Wednesday.

Local media reported on Wednesday that political circles revealed that the FSC failed to submit the legislation to the National Assembly’s National Policy Committee. The Democratic Party of Korea had previously set a deadline of December 10 for the government’s Phase 2 Virtual Asset Bill. The deadline was decided via a government-party consultation on December 1.

Korea’s central bank demands banks hold 50% stake in stablecoin issuers

The Democratic Party of Korea proposed its Basic Digital Asset Act in June, set to regulate stablecoins. Lawmakers from the political party suggested that non-banks and payment providers issue stablecoins, while the Financial Services Commission acts as the primary regulatory body.

The FSC and the Bank of Korea have yet to resolve their differing opinions on the entity responsible for issuing the won-pegged stablecoins. The central bank of Korea argued that the issuance of the stablecoin should only be permitted to a consortium. The Reserve Bank also suggested that banks should hold a stake of more than 51% in the won-pegged stablecoin.

The Financial Services Commission has not confirmed the bank-led consortium approach, but rejected the 51% stake ratio. A copy of the FSC’s proposals revealed its evaluation of the advantages and disadvantages of various structures. 

The government agency argued that one or more banks controlling more than 50% of a stablecoin issuer may address Korea’s central bank financial stability concerns. Korea’s Banking Act also prohibits banks from owning more than 15% of non-financial companies, which tends to separate finance and industry.

The FSC also believes that other non-banking sectors in the economy should also participate in the issuance of the won-pegged stablecoin. The government agency noted that 14 out of 15 EU MiCA-regulated stablecoins are non-banks.

The Bank of Korea and the FSC also clashed over the approval of stablecoin issuance and supervisory authority. Korea’s central bank believes that a unanimous consensus body should approve the issuance of stablecoins in the country. 

The financial institution also demands the authority to request inspections by the Financial Supervisory Commission of stablecoin issuers. The Financial Service Commission rejected the request, arguing that it could give the central bank extreme authority.

The Bank of Korea seeks to define issuers as financial institutions

A prolonged delay in the government bill’s preparation could lead to other legislative bills currently proposed by lawmakers being discussed first. Korea’s Democratic Party was planning to pass the Phase 2 Virtual Asset Bill by reviewing the government legislation.

The Chosun Daily reported that a source from the Democratic Party-affiliated Political Affairs Committee argued that it’s currently difficult to reduce disparities between the Financial Service Commission and the Bank of Korea. The source also stated that failure to submit the government bill could lead to a prolonged discussion process. 

He believes the government should first review the legislation proposed by lawmakers. Lawmakers from the Democratic Party, including Ahn Do-gul, Min Byung-deok, and Kim Hyun-jung, are among the lawmakers who have proposed bills. Others from the People Power Party, such as Kim Eun-hye and Kim Jae-sub, have also proposed legislation.

The Bank of Korea also previously suggested defining issuers as financial institutions. The initiative poses legal challenges since the Lee Jae Myung administration does not classify digital assets as financial investment products under the Capital Markets Act.

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