Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
Korea's stablecoin debate lays bare structural contradictions
Lawmakers enter a policy coordination meeting on stablecoins at the National Assembly in Seoul, Monday. Newsis
By Lee Yeon-woo
Korea's push to regulate won-denominated stablecoins is exposing conflicts and gaps in existing laws, industry officials said Thursday, calling for industry-wide discussions that go beyond stablecoins.
The government and the ruling Democratic Party of Korea (DPK) are weighing a proposal that would allow only consortia with at least 51 percent bank ownership to issue won-based stablecoins. The aim is to ensure stability by keeping control in the hands of trusted financial institutions.
But the plan runs into immediate legal hurdles. Under the Banking Act, banks are prohibited from owning more than 15 percent of nonfinancial companies — a long-standing rule designed to maintain the separation of finance and industry.
Therefore, if stablecoin issuers are classified as general corporations, including fintech firms, at least four banks would be required to form a consortium to meet the 51 percent threshold, complicating the decision-making environment.
"While cross-border payment is a potential use case, traditional banks' caution around anti-money laundering could keep these flows cumbersome, limiting any near-term speed or cost advantage stablecoins might otherwise offer," said Rena Kwok, a senior credit analyst at Bloomberg Intelligence.
An alternative under discussion is to define issuers as financial institutions — a move that also presents legal challenges. Virtual assets are not classified as financial investment products under the Capital Markets Act, meaning financial firms would be handling assets that are legally nonfinancial under the structure.
Regulators are reportedly aware of the issue and are examining it further.
Industry officials said that the long-overdue regulatory clarity and flexibility have become indispensable with the introduction of a stablecoin framework.
A photo illustration of gold-plated souvenir Bitcoins / AFP-Yonhap
At the heart of the debate is whether virtual assets should be nurtured as innovation drivers or tightly integrated into existing systems to curb volatility. The divide isn't limited to industry players and economists, such as those at the Bank of Korea, but extends to lawmakers as well.
"A bank-centered consortium essentially amounts to giving up on innovation," Rep. Ahn Do-geol told reporters at the National Assembly, Tuesday, adding that non-bank financial institutions, fintech firms and blockchain companies should also be eligible to issue stablecoins.
It's not that banks haven’t pushed for broader access to nonfinancial business opportunities or sought to spur innovation. Following the launch of the Lee Jae Myung administration, the financial sector once again urged authorities to ease restrictions on entry into virtual asset services and related fields. Yet those calls have gained little traction amid ongoing opposition.
Regulatory stances and guidelines on virtual assets introduced in 2017 also remain largely unchanged, despite dramatic shifts in the market.
The Financial Services Commission (FSC) said it is finalizing a draft of the second Virtual Asset User Protection Act to reduce legal uncertainty, while also revising outdated regulations and preparing new legislation on stablecoins.
"Issues such as foreign user access, the real-name verification system, derivatives and the separation of finance and industry are all tied to existing institutional rules," Kim Sung-jin, head of the virtual asset division at the FSC, said Wednesday at a DPK-hosted seminar. "For a viable digital-asset ecosystem to emerge, these components need to evolve together."
The DPK has asked the FSC to submit a proposal by Dec. 10, and said it is consulting with the presidential office due to the potential national impact. Policy discussions are likely to continue into next year.