South Korea’s Crypto Regulation Delayed as Stablecoin Rules Face Deadlock

South Korea’s next major step toward comprehensive crypto regulation has been pushed into 2026, as regulators remain divided over how tightly stablecoin issuance should be controlled.

While authorities broadly agree on imposing strict investor protection standards, a prolonged dispute over who should be allowed to issue stablecoins has stalled legislative progress.

According to a report from Yonhap News Agency, the Financial Services Commission (FSC) is drafting a wide-ranging Digital Asset Basic Act that would introduce robust safeguards for stablecoin users.

Regulators Propose Full Reserve Custody Rules for Stablecoin Issuers

Under the proposal, issuers would be required to hold reserve assets entirely in bank deposits or government bonds and entrust 100% of those reserves to licensed custodians such as banks.

The goal, regulators say, is to insulate investors from losses if a stablecoin issuer collapses.

By segregating reserves and placing them under third-party custody, authorities aim to prevent the spillover risks that have plagued poorly backed digital assets in past market failures.

Beyond stablecoins, the bill would significantly raise compliance standards across the crypto sector. Digital asset service providers would be subject to disclosure rules, advertising restrictions, and customer protection requirements similar to those in traditional finance.

In cases of hacks or system outages, firms could be held liable for damages even in the absence of negligence, mirroring liability standards applied to online retail platforms.

The draft law could also reopen the door to domestic token fundraising. Initial coin offerings (ICOs), banned in South Korea since 2017, may be permitted for local projects that meet strict disclosure and risk management criteria, marking a notable shift in policy.

Despite agreement on investor protections, stablecoin regulation remains the central point of contention.

The Bank of Korea has pushed for a model in which stablecoins are issued only by consortia controlled by banks, insisting that lenders hold at least a 51% ownership stake.

The central bank argues this approach is necessary to protect monetary stability and prevent systemic risks.

The FSC, however, has resisted setting a fixed ownership threshold. Officials have warned that limiting issuance to bank-led structures could sideline technology firms and slow innovation in payments and digital finance.

Regulators Propose Full Reserve Custody Rules for Stablecoin Issuers

The two bodies are also split on governance. The Bank of Korea favors creating a new licensing committee dedicated to stablecoin oversight.

However, the FSC maintains that an additional body would be unnecessary, noting that it already operates as a statutory regulator in coordination with the central bank and the Ministry of Economy and Finance.

This month, South Korea revealed that it is preparing one of its most aggressive crackdowns on cryptocurrency-related financial crime by expanding its travel rule requirements.

The new threshold covers transactions under 1 million won ($680), which until now allowed users to bypass identity checks by breaking transfers into smaller amounts.

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