- South Korea will apply foreign exchange rules to stablecoin cross-border transactions for improved regulation and oversight.
- The Financial Services Commission will prioritize stablecoins under the Virtual Asset User Protection Act’s second legislative stage.
- A legal system for South Korea’s won-pegged stablecoins will be established before applying similar rules to foreign currencies.
South Korea’s government is set to implement foreign exchange regulations on stablecoins used in cross-border transactions. According to an announcement from the Ministry of Economy and Finance on October 8, these measures are being considered to ensure the stability of transactions involving stablecoins, particularly those pegged to the U.S. dollar. The Ministry highlighted that stablecoins are increasingly utilized for international transfers, which may necessitate distinct regulatory approaches.
Regulatory Focus on Stablecoins
As part of the efforts to regulate the growing use of stablecoins, South Korea’s Financial Services Commission (FSC) will prioritize discussions around these digital assets. The FSC’s agenda includes the second phase of the Virtual Asset User Protection Act, which seeks to implement stronger protections for users and establish clear regulations around stablecoins. The government aims to collaborate with international regulatory bodies, such as those in Japan and the European Union, although no specific timeline has been provided for these consultations.
The government also indicated that it will first focus on establishing a legal framework for stablecoins pegged to the South Korean won. Once this system is in place, the same regulatory guidelines will be extended to stablecoins backed by foreign currencies.
Global Context of Stablecoin Regulation
South Korea’s move follows Japan’s and the European Union’s recent regulatory efforts. After the collapse of Terra in 2022, Japan prohibited non-banking institutions from issuing stablecoins, though it lifted the ban in 2023. Meanwhile, the European Union’s Markets in Crypto-Assets Regulation (MiCA) came into effect in June, leading to the delisting of non-compliant stablecoins by crypto exchanges.
South Korea has also been tightening its cryptocurrency regulations. On July 19, the country’s Virtual Asset Protection Act went into effect, imposing stricter rules on virtual asset service providers (VASPs). These rules include mandatory insurance to protect against hacking and other cyberattacks, as well as requirements to separate user assets from exchange tokens. Violators of the law face serious consequences, including fines and potential jail sentences.
