The ongoing discussions surrounding South Korea’s stablecoin legislation face potential delays, impacting the timeline for its implementation. Financial authorities are currently at odds with the Bank of Korea (BOK) concerning the involvement of traditional banks in this emerging sector.
Discrepancies Between BOK and Financial Regulators
Recent reports indicate that the awaited framework for stablecoins, anticipated to materialize by the end of 2025, may not see approval this year. While regulatory bodies seek to facilitate market entry for technology firms, the central bank emphasizes that banks must have a significant stake in any stablecoin issuance.
Sources suggest that although both parties agree on the necessity of bank participation in the process of issuing stablecoins, significant differences remain regarding the extent of their involvement.
The BOK advocates for a consortium where banks would hold at least 51% of any stablecoin issuer looking to gain regulatory support. Meanwhile, regulators show a readiness to embrace innovation, contemplating a more diverse ecosystem.
Despite potential agreement on ownership dynamics, other pressing concerns, including limits on total issuance and the overarching regulatory framework, persist.
Specifically, the BOK has proposed a legally mandated interagency council to guide stablecoin policy decisions through unanimous consent. However, financial regulators have raised concerns about the legal foundation for such a requirement.
In a prior statement, BOK Governor Lee Chang-yong articulated apprehensions regarding non-bank entities producing stablecoins, suggesting that these actions might disrupt monetary policies and foreign exchange regulations.
Lee cautioned that multiple non-bank issuers could mirror the confusion caused by previous private currency systems, asserting that uninhibited issuance of won-pegged tokens could conflictingly engage with foreign exchange policies.
Moreover, a recent BOK report acknowledged that while stablecoins present exciting opportunities for the economy, they also harbor risks that could trigger instability. The report contended that exaggerated expectations in the market are ill-advised.
According to the BOK, allowing non-banking enterprises to issue stablecoins equates to allowing them to enact narrow banking practices, providing both currency and payment services.
In addition, the bank warned about the implications of online platforms issuing their own stablecoins, which could concentrate “monopolistic control” and disrupt traditional banking revenue streams.
Regulatory Hurdles Facing Korea’s Stablecoin Initiatives
A BOK official, speaking anonymously, expressed that traditional banks, due to their existing regulatory oversight and experience in anti-money laundering Protocols, are ideally suited to be leading stakeholders in stablecoin initiatives.
Nonetheless, concerns have arisen regarding how allocating majority stakes to banks might stifle technological innovation and participation from non-bank entities within the Korean financial landscape.
Reports indicate that financial institutions are preparing for two key outcomes. There are plans for joint ventures among banks to issue stablecoins collectively, alongside outreach to various non-bank entities to adapt to the forthcoming regulatory environment.
This ongoing regulatory standoff has created uncertainty within the marketplace, with some tech companies moving forward to secure necessary approvals while others cautiously await clearer regulatory guidance.
One fintech representative noted ongoing doubts about the feasibility of a won-based stablecoin, emphasizing that the ambiguity surrounding approval processes has prompted many firms to adopt a cautious approach.
Furthermore, a recent analysis by Hashed Open Research suggests that to maintain a competitive edge in the digital realm, Korea should pursue a capital-market-driven structure rather than one predominantly bank-centered, akin to major players like Tether and Circle.
Kim Sang-bong, an economics professor, asserts that achieving public trust in stablecoins necessitates banking involvement, but he warns that excessive bank control may stifle innovation. His proposition is to initially authorize licenses to payment-focused firms and card companies.
