The government's draft of the Digital Asset Framework Act, which establishes a new regulatory framework for the virtual asset market, will be made public this month. South Korea's Financial Services Commission is in the final stages of coordination, including consultations with related agencies, with the goal of proposing the bill this month. On the most contentious issue—limits on major shareholder stakes in virtual asset exchanges—the prevailing view favors introducing the regulation but granting a 1-2 year grace period before final implementation.
The Financial Services Commission plans to brief related ministries and political circles on the outline of the government's draft around November 8, and to disclose the full structure and key contents by the end of this month. The bill will be submitted as a lawmakers' bill rather than through the government legislative process. Lee Eok-won, chairman of the Financial Services Commission, previously said the bill could run to 135 articles, though there is talk that the final version may contain even more provisions.
The Digital Asset Framework Act is a comprehensive bill covering areas the existing legal framework has not addressed, including the issuance and circulation of stablecoins, entry requirements for virtual asset service providers, exchange discipline, and investor protection. The Financial Services Commission recently announced plans to convert the entry regulation for virtual asset exchanges from the current registration system to a licensing system. The rationale is that as exchanges take on greater public responsibility, they need governance commensurate with that role.
The major shareholder stake limit—the key sticking point—is expected to be set at 15-20%, comparable to the level applied to alternative trading systems (ATS) under the Capital Markets Act. The intent is to address structures in which profits and control are excessively concentrated among a small number of founders or shareholders. However, rather than requiring existing exchanges to immediately divest shares, granting a grace period is the likely approach. Under this scheme, if major shareholders adjust their stakes to comply with the rules within a 1-2 year period, no separate sanctions would be imposed.
Considering concerns that directly capping ownership ratios could trigger constitutional disputes over infringement of property rights, a measure restricting voting rights instead of shareholdings may be presented as an alternative. The financial authorities are reportedly reviewing both the effectiveness and legal legitimacy of the regulation.
Another contentious issue—the entities permitted to issue won-denominated stablecoins—is expected to be restricted to bank-led consortiums. The Bank of Korea has consistently argued that a bank-centered issuance structure is necessary in light of monetary and financial stability. On the other hand, others have argued that broadening participation by fintech and other technology companies is needed to promote financial innovation using stablecoins. The government's draft is likely to include a structure in which banks take the lead while non-bank financial companies and technology firms participate alongside them.
The bill will also include provisions strengthening the liability of virtual asset service providers. The aim is to establish institutional safeguards to prevent a recurrence of incidents such as the large-scale erroneous Bitcoin payout by Bithumb earlier this year. Measures under consideration include imposing no-fault liability for damages when customer losses occur due to hacking or system failures, and imposing sanctions such as suspension of business operations for violations of the obligation to hold actual assets corresponding to the virtual assets held by customers.
Taxation issues are behind the acceleration of the legislative debate. Kim Min-seok, leader of the Democratic Party of Korea, asked the government on November 4 to again delay the taxation of virtual asset income, which had been scheduled to take effect next year. He said, "After comprehensively considering taxation principles, domestic industry conditions, and equity among users, it is desirable to first enact the Digital Asset Framework Act to establish an overall framework and give companies and investors an adjustment period." The ruling party's judgment—that market order should be established through the framework act before pushing ahead with virtual asset taxation—has given momentum to the bill's preparation.
As the Digital Asset Framework Act is an effort to bring the entire virtual asset trading ecosystem into the institutional fold, discussions have been protracted due to the need to reconcile differing views among related agencies. Even after the government's draft is released, there are many contentious issues—including the major shareholder stake limit and the stablecoin issuance structure—so the details are highly likely to change during the National Assembly review process.
Market observers believe the regulatory contours surrounding exchange governance and stablecoin issuers will shape entry barriers and profit structures for virtual asset businesses going forward. If the major shareholder stake regulation is confirmed with a grace period, the governance restructuring burden on listed exchanges would be eased for the time being; on the other hand, if a bank-centered stablecoin issuance structure takes hold, business opportunities for the fintech industry could be limited. The virtual asset industry hopes the bill will specify licensing criteria in detail to reduce confusion on the ground, and will include measures to strengthen industrial competitiveness alongside regulation.
