Ruling party lawmaker Lee Kang-il files Digital Asset Innovation Act…includes regulation of overseas stablecoins and ICOs

Lee Kang-il lawmaker and the Fintech Industry Association unveil the 'Digital Asset Innovation Act'

Apply a segmented authorization system to the digital asset industry

"Prevent indiscriminate circulation of overseas stablecoins"

"Changes to the financial market ecosystem due to digital assets and stablecoins (virtual assets pegged to fiat currency) are an inevitable global trend. South Korea should actively respond to and take the lead in these changes, and furthermore foster it as a national industry that even considers mainnet development."

On the 4th, Lee Kang-il of the Democratic Party of Korea held a press briefing at the National Assembly press center and said he would file the 'Digital Asset Innovation Act.' The Digital Asset Innovation Act proposed by the lawmaker includes entry regulations, prudential regulations, business conduct regulations, disclosure regulations, unfair trading regulations for the digital asset market, and furthermore specifies a separate regulatory framework for overseas-issued stablecoins.

First, a segmented authorization system will be applied to digital asset operators. The lawmaker explained, "Operators seeking to provide services in the digital asset market must meet certain requirements and obtain authorization, and trading/exchange businesses including exchanges, custody services, wallet services, and lending services will be subject to registration." He emphasized that digital asset operators must meet capital requirements and that joint and individual regulations have been prepared to maintain soundness and prevent unsound business practices.

The law specifies that digital asset operators must meet a minimum capital requirement of KRW 1 billion for authorization and KRW 500 million for registration by presidential decree, and prudential requirements must be maintained throughout the operation period. In particular, for exchanges, the criteria and procedures for trading support review are directly stipulated in the law, subjecting them to ex post verification by financial authorities.

The Digital Asset Innovation Act also permits token offerings (ICO) domestically. The lawmaker stated, "If this bill is enacted, domestic ICOs will be allowed," and added, "When digital assets are issued, legal review by the relevant legal association will be conducted, and disclosure of the whitepaper and product description for investor protection will be mandatory." The disclosure system is planned to be configured similarly to the 'DART' system operated by the Financial Supervisory Service.

Strict regulation of overseas-issued stablecoins

The bill also includes a separate regulatory framework for stablecoins. Specifically, it outlines an authorization system for stablecoin issuers, detailed rules on the composition, custody and management of reserve assets, and disclosure requirements.

The lawmaker explained, "We set the capital requirement for stablecoin issuers at KRW 1 billion or more by presidential decree," and added, "In addition, the suitability of executives and major shareholders, the validity of business plans, conflict-of-interest prevention systems for users, and risk management capabilities will be strictly reviewed." Stablecoin reserve assets must consist only of short-term safe assets, and audits will be conducted annually through disclosure.

For the first time, the bill also contains regulatory measures for the circulation of overseas stablecoins. The lawmaker said, "There are many concerns about stablecoins issued overseas recently," adding, "Accordingly, we plan to establish a legal basis to allow the circulation of overseas-issued stablecoins in the country only if they meet the requirements set by the Financial Services Commission so they are not freely circulated domestically." He added, "We will also ensure there is no regulatory arbitrage between domestically issued stablecoins and others."

The lawmaker said, "Various bills will be brought together and people from the party, the government, and the Presidential Office will form a task force (TF) to discuss the strengths and weaknesses of each bill," and added, "I hope we can complete the basic framework within this year."