South Korea’s FSC To Prohibit Stablecoin Interest Payments In Upcoming Framework
South Korea’s Financial Services Commission (FSC) will reportedly comply with US regulatory steps and embody a ban on stablecoin curiosity funds in its extremely anticipated framework, anticipated to be launched later this yr.
FSC To Prohibit Interest Payments on Stablecoins
On Monday, Yonhap News reported that Financial Services Commission Chairman Lee Eun-won affirmed that the regulatory company will “basically prohibit the cost of curiosity on stablecoins as a precept.”
During a National Assembly’s Government Affairs Committee audit, Lee emphasised that curiosity funds on digital property pegged to the Korean received (KRW) “should be blocked in any kind,” following a query by People Power Party (PPP) lawmaker Yoo Young-ha.
In July, South Korea’s ruling and opposition events proposed two rival payments to determine the extremely anticipated regulatory framework for won-pegged digital property. Both payments shared a number of similarities, together with the project of stablecoin oversight to the FSC. However, they differed within the difficulty of curiosity funds.
The PPP’s invoice would enable curiosity funds to incentivize the usage of won-pegged tokens overseas. In distinction, the Democratic Party of Korea (DPK)’s invoice would utterly ban curiosity funds to “stop market disruption.”
At the time, some business gamers known as for a novel method to KRW-based tokens, arguing that the prohibition “is a measure primarily based on U.S. securities regulation, so different international locations outdoors the U.S. can design their methods following their very own nationwide laws.”
Nonetheless, the FSC chairman defined in the course of the October 20 National Assembly’s audit that South Korea will undertake the identical precept because the US framework, the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, which additionally prohibits curiosity funds on the holding or use of payment-purpose stablecoins.
It’s price noting that the GENIUS Act has been criticized for potential loopholes associated to curiosity funds on stablecoins, because the prohibition solely addresses issuers and may very well be “simply circumvented” by exchanges or associates offering rewards.
In August, a number of banking associations throughout the US despatched a joint letter to the Senate Banking Committee urging Congress to amend the laws. The letter argued that curiosity funds distort market dynamics and will hinder credit score creation, and recommended extending the prohibition on curiosity funds to incorporate digital asset exchanges, brokers, sellers, and associated entities.
Second Phase Of Regulation Coming This Year
While discussing potential requests of forming a consortium led by banks, with fintech corporations serving solely as know-how companions, “to take care of the separation of banking and business,” and prohibiting digital asset exchanges from issuing their very own stablecoins, the FSC chairman asserted that the monetary authority “should guarantee world consistency and assure alternatives for innovation, however proceed in a steady method.”
Chairman Lee additionally confirmed that the FSC plans to submit the second section of the Virtual Asset User Protection Act to the National Assembly this yr. As reported by Bitcoinist, the federal government’s invoice is predicted to be submitted in This fall, with some lawmakers beforehand suggesting it might occur as quickly as this month.
Notably, the FSC has been working to develop digital property laws and shift its regulatory method for over a yr, establishing the Virtual Asset Committee final November to arrange the following section of its plan, aiming to finalize it by the second half of 2025.
The second section of the Virtual Asset User Protection Act contains regulations on the distribution of digital property and stablecoins, persevering with its efforts to align with world requirements.
“As we’re within the preliminary stage of designing the system, we acknowledge the significance of incorporating adequate safeguards and are meticulously reviewing it with related ministries,” Lee defined, including, “We are within the closing phases of coordination.”
He additionally detailed that the FSC is contemplating “methods to increase the utility of stablecoins, as they are often linked to abroad demand for digital asset buying and selling, cost settlements, and remittances.” “We will proceed with the regulation because it stands, whereas making ready the enforcement decree and follow-up work upfront to make sure swift implementation,” the FSC chairman concluded.
