South Korea’s Crypto Regulation Hits Roadblock: Stablecoin Rules in Deadlock, Market Awaits Clarity

Seoul's push for a comprehensive crypto framework just slammed into a political wall. The much-anticipated regulations—specifically the rules governing stablecoins—are now stuck in legislative gridlock. Lawmakers can't agree on who should oversee these digital assets, leaving the entire market in regulatory limbo.

The Core Sticking Point: Who's in Charge?

Is it the Financial Services Commission (FSA) or the central bank? That's the multi-billion won question paralyzing progress. Each agency claims jurisdiction, creating a classic bureaucratic standoff while crypto exchanges and issuers are left guessing what rules they'll eventually need to follow. This delay isn't just procedural—it's a direct hit to market certainty that investors and builders desperately need.

Why This Deadlock Matters More Than You Think

Without clear stablecoin rules, South Korea risks falling behind in the race to integrate digital assets into its mainstream financial system. Other jurisdictions are moving forward with frameworks, but Seoul's impasse creates a vacuum. It's the kind of uncertainty that makes traditional finance guys nervous—and ironically, the very thing regulation is supposed to prevent.

Market Reaction: A Collective Shrug (For Now)

Surprisingly, trading volumes haven't tanked. The market seems to have priced in regulatory delays as a standard part of the crypto adoption playbook—another cynical reminder that in finance, expected bad news is no news at all. But this patience won't last forever. The longer the deadlock continues, the greater the risk of stifling innovation or pushing projects to friendlier shores.

The bottom line? South Korea's crypto future remains promising, but its present is stuck in committee. Until politicians decide which regulator gets the keys, the market operates on hope rather than law—a fittingly decentralized approach for an industry that never asked for permission in the first place.

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.

LATEST:South Korean payments giant BC Card has completed a pilot project that enabled foreign users to pay local merchants using stablecoins, as part of preparations to implement a stablecoin payment structure. pic.twitter.com/MMfugenwbR

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.