Stablecoin turf battle intensifies between FSC and BOK

Bank of Korea Gov. Rhee Chang-yong, right, answers lawmakers’ questions on stablecoins during a National Assembly audit in Seoul, Oct. 29. Yonhap

Korea’s plan to introduce a regulatory framework for stablecoins by the end of the year is facing growing uncertainty, as disagreements emerge between the Financial Services Commission (FSC), the country’s top financial regulator, and the Bank of Korea (BOK) over key provisions, National Assembly officials and financial authorities said Wednesday.

Stablecoins are digital currencies designed to maintain a stable value by being tied to central bank-issued currencies, such as the U.S. dollar, or to physical assets like gold. Tether (USDT) and USD Coin (USDC), both pegged one-to-one to the U.S. dollar, are among the most widely used stablecoins.

The Assembly’s National Policy Committee had previously indicated its plan to bring stablecoins under the regulatory framework through the second stage of the Virtual Asset User Protection Act, which came into effect in July 2024.

At Monday’s subcommittee meeting, however, the proposed bills outlining stablecoin oversight were removed from the agenda. With several unresolved issues still dividing the relevant institutions, prospects for the bills’ passage within the year are diminishing.

A major sticking point has been a dispute between the financial regulator and the central bank over which should oversee stablecoins.

According to a review report by the committee’s chief expert, Rep. Kim Eun-hye of the main opposition People Power Party and Reps. Ahn Do-geol and Kim Hyun-jung of the ruling Democratic Party of Korea drafted bills that would grant the central bank authority far beyond its current rights.

Kim Eun-hye’s proposal introduces a new provision allowing the BOK to request inspections, while Ahn’s bill grants the central bank the right to participate in joint inspections and even enables both the bank and the finance ministry to request emergency corrective orders. Kim Hyun-jung’s version similarly expands the bank’s role, citing the need to ensure payment and settlement stability.

These bills align with the BOK’s argument that its supervisory role over stablecoins must be strengthened, pointing to potential payment-system risks and implications for the transmission of monetary policy.

The FSC expressed strong concerns about these expanded powers.

“Virtual asset regulation should be designed consistently within the FSC’s existing legal framework. Distributing inspection authority across multiple agencies could create confusion in the market,” the FSC said in its opinion submitted to the committee.

Financial Services Commission Chairman Lee Eog-weon, left, attends a meeting of the National Policy Committee of the National Assembly in Seoul, Monday. Yonhap

The central bank has also maintained its stance that a formal coordination body comprising itself, the finance ministry and the FSC should be established, noting that cooperation across currency, foreign exchange and financial policy is essential.

In its latest report, it said such a body should deliberate on matters including criteria for stablecoin issuers, issuance caps and rules for reserve asset composition.

The FSC, however, opposed the idea, saying that obligating it to adopt conclusions reached by a separate coordination body could undermine its independence and run counter to its statutory decision-making authority as a collegial regulator.

As for stablecoin issuers, the FSC and the BOK have agreed on the need for banks to be involved. The key unresolved issue is the extent of equity participation banks should be permitted to hold.

The BOK argued that firms applying for a stablecoin license should be required to have a banking consortium own at least 51 percent of their shares. It warned that allowing non-bank companies to take the lead could breach the country’s long-standing separation between industrial and financial capital.

The financial regulator, however, cautioned that such a rule could discourage participation from technology companies and ultimately dilute the level of innovation the market is aiming for.

This view aligns with a recent report published by Hashed Open Research, an affiliate of the blockchain investment firm Hashed, which noted that Tether and Circle operate on models more aligned with capital markets rather than banks.

The report emphasized that, to secure a competitive edge in the digital economy, Korea should strategically pursue a capital-market-focused issuance model instead of a bank-centered one.