Summary

  • Attorney Jung Young-ki said the Digital Asset Basic Act should include rules to address risks tied to stablecoins, anti-money laundering (AML) and other areas.
  • Jung said stablecoin issuers should be designated as entities subject to anti-money laundering obligations, and that the conditions and procedures for asset freezing, blocking and burning should be clearly defined.
  • Jung said consistency with the Foreign Exchange Transactions Act, a public-private cooperation framework and clear regulation must be included in the bill for a stablecoin ecosystem to take shape.

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Legislation on stablecoins, a key part of South Korea’s proposed Digital Asset Basic Act, should include regulatory measures to address anti-money laundering, or AML, and other risks, according to a proposal presented at a seminar.

Jung Young-ki, an attorney at Kim & Chang, made the case at a seminar titled “Tasks After the Digital Asset Basic Act” held on Nov. 10 at the Financial Investment Education Institute of the Korea Financial Investment Association.

“It is important to identify the specific risks tied to stablecoins and apply rules that match those risks,” Jung said.

He first stressed that stablecoin issuers should be designated as entities subject to AML obligations.

“At the licensing stage, authorities need to verify whether issuers have AML capabilities such as compliance officers, internal control systems and independent third-party audits,” he said.

Jung added that stablecoins offer high price stability, ample liquidity and no cross-border constraints. Those characteristics, he said, can make them vulnerable to misuse for money laundering.

At the distribution stage, lawmakers should avoid imposing excessive liability on issuers, he said.

“Exchanges and other distribution participants already bear their own AML obligations,” Jung said. “Responsibility between issuers and distribution participants should be clearly divided.”

He also called for a legal basis for asset-freezing and blocking procedures.

“If an issuer freezes assets based on its own judgment, that could trigger legal disputes,” he said. “The conditions and procedures for freezing, blocking and burning assets should be clearly defined.”

Jung also cited consistency with the Foreign Exchange Transactions Act and the creation of a public-private cooperation framework as key legislative tasks for stablecoins.

“If the government identifies wallet addresses linked to terrorist financing, it should share that information with issuers,” he said. “Issuers should also have a system for sharing suspicious transaction data with state agencies.”

In Jung’s view, those provisions must be included in the bill for a stablecoin ecosystem to take shape.

“Clear rules are better than unclear ones, even if they are strict,” he said. “If the regulatory framework is ambiguous, businesses face a situation where it is difficult to respond either aggressively or loosely.”

Uk Jin