In a significant regulatory update, South Korea’s Financial Services Commission (FSC) is taking steps to align its policies with global standards by restricting the payment of interest on stablecoins. This move aims to enhance financial stability and protect consumers, reflecting the ongoing evolution of digital asset regulations worldwide.

FSC’s Stance on Stablecoin Interest Payments

Recently, FSC Chairman Lee Eun-won announced a decisive strategy, stating that interest payments on stablecoins will be “strictly prohibited.” This action is rooted in the commission’s commitment to enforcing comprehensive regulations on digital currencies as part of its upcoming policy framework.

During discussions at a National Assembly session, Lee highlighted that stablecoins tied to the Korean won (KRW) must not facilitate interest accrual, reinforcing the need for a balanced approach in a rapidly changing financial landscape.

This decision follows the introduction of two competing legislative proposals from South Korea’s political factions, both of which seek to establish a clearer regulatory environment for stablecoins. While there are divergent views on permitting interest payments, both proposals underscore the urgency of creating an effective oversight mechanism.

The ruling People Power Party (PPP) has suggested allowing interest payments as a means of promoting KRW-pegged tokens internationally. On the other hand, the Democratic Party of Korea (DPK) advocates for a total ban to avoid market volatility.

Industry experts have pointed out that South Korea’s approach mirrors aspects of U.S. legislation, notably the GENIUS Act. It prescribes similar restrictions on interest payments, although some have raised concerns over potential loopholes that may be exploited by cryptocurrency exchanges.

Similar discussions have taken place in the U.S., where banking organizations have expressed that interest payments can complicate market dynamics and potentially disrupt credit flows. They have called for an expansion of the current prohibitions to include exchanges and their affiliates.

Upcoming Regulatory Developments

Chairman Lee underscored the FSC’s commitment to facilitating a well-regulated environment for digital assets while nurturing innovation in the sector. Plans include exploring partnerships with banks and fintech firms to create a robust framework for managing stablecoins and other virtual assets.

The FSC’s initiative also encompasses the second phase of the Virtual Asset User Protection Act, with formal submissions expected later this year. This legislation seeks to redefine the landscape of digital asset management and aligns with international best practices.

For over a year, the FSC has been working diligently to craft comprehensive digital asset regulations, setting the stage for future growth and security in the sector. The Virtual Asset Committee was established to ensure a thoughtful approach to these regulatory changes.

The anticipated updates will introduce measures to oversee the distribution of stablecoins and other digital assets, ensuring they align with global standards. “Our focus remains on integrating sufficient safeguards as we design the regulatory system,” stated Lee.

The FSC is also looking into ways to enhance the functionality of stablecoins, keeping in mind their potential roles in international trade and remittances. Emphasizing a careful and calculated approach, Lee assured that measures would be put in place for the law’s prompt enactment.