South Korea is taking steps to regulate cross-border transactions involving stablecoins, particularly those tied to the U.S. dollar. On October 8, the Ministry of Economy and Finance announced that it is reviewing measures to ensure stablecoin transactions are handled securely, especially when used for global transfers.
The Financial Services Commission (FSC), South Korea’s top financial regulator, will address stablecoin regulation in the second phase of the country’s Virtual Asset User Protection Act. The FSC plans to work with regulators from other countries, including Japan and the European Union, to develop stablecoin rules. However, no specific timeline for these consultations has been provided.
One of the main goals is to first establish a legal framework for issuing stablecoins pegged to South Korea’s national currency, the won. Once this is in place, the country will focus on regulating stablecoins tied to foreign currencies, like the U.S. dollar.
Japan has already implemented stablecoin regulations, especially after the collapse of the Terra stablecoin in 2022. Initially, Japan banned non-bank institutions from issuing stablecoins but lifted this ban in 2023 under stricter guidelines. Similarly, the European Union’s Markets in Crypto-Assets (MiCA) regulation came into effect in June 2023, leading to changes in how stablecoins are handled in the EU.
In addition to stablecoin regulation, South Korea has recently enforced stricter laws to protect crypto users. The Virtual Asset Protection Act, which came into effect in July 2023, requires virtual asset service providers (VASPs) to implement measures such as separating user assets from exchange tokens and keeping customer deposits in banks. VASPs must also take out insurance to protect against hacks and malicious attacks. Furthermore, these providers must regularly review the tokens listed on their platforms to ensure compliance with the new regulations.
Violations of these laws could lead to severe punishments, including jail sentences and fines that are three to five times the amount of illegally gained profits. This is part of South Korea’s broader efforts to ensure that the crypto industry operates in a secure and transparent manner.
