This initiative is seen as part of the South Korean government’s goal to apply foreign exchange rules to cross-border transactions related to dollar-based stablecoins.

On October 8, it was reported that the country’s Ministry of Economy and Finance was reviewing measures to ensure the robustness of stablecoin transactions.

The ministry stated that stablecoins are not only used for transactions and exchange within the crypto ecosystem, but are also an important tool for international transactions. This means that the functions of stablecoins extend to global transfers, which may require different regulations.

The Financial Services Commission (FSS), as South Korea’s top financial regulator, aims to make discussions about stablecoins a priority issue in the second legislative phase of the country’s Virtual Asset User Protection Act. At this stage, necessary steps will be taken to better understand the use and regulation of stablecoins.

FSS plans to consult with regulators in other jurisdictions, including Japan and the European Union. However, it is stated that the agency does not provide a specific consultation schedule. This shows how South Korea’s approach to regulating stablecoins places emphasis on international cooperation.

Stablecoin regulations will first begin with a system for issuing won-linked tokens. This means that a legal system will be established first for won-based stablecoins and then applied to other foreign currency stablecoins.

In 2022, the Japanese government issued new rules regarding stablecoins after the Terra collapse and banned the issuance of stablecoins by non-banking institutions on June 3, 2022. However, this ban was lifted in 2023.

The European Union’s Crypto-Asset Market Regulation (MiCA) regulation came into force in June, which led crypto exchanges to delist non-compliant stablecoins. These developments reveal how dynamic and changing South Korea’s regulatory framework for cryptocurrencies is.

South Korea has recently tightened its laws to protect crypto users. The Virtual Asset Protection Act, which came into force on July 19, required virtual asset service providers (VASPs) in the country to take stricter measures to protect user assets.

The law requires VASPs to insure against cyberattacks and malicious attacks. Additionally, providers are required to keep customer assets separate from exchange tokens and keep customer deposits in banks.

The South Korean government announced that it would impose severe penalties on violators. These penalties include imprisonment and fines equal to three to five times the illicit proceeds. This shows how strict South Korea’s regulations on cryptocurrencies are and its determination to protect users.