South Korea Postpones Crypto Rules After Stablecoin Issuance Deadlock

South Korea hit pause on its long-awaited crypto rules. The government said it’s pushing back the Virtual Asset User Protection Act, and the reason is pretty straightforward: politicians can’t agree on who should get to issue stablecoins.

This whole thing was supposed to roll out this year. Instead, the Financial Services Commission and National Assembly members are stuck arguing over market access, and that’s thrown the entire legislative process into limbo. The problem isn’t going away either, because both sides have dug in hard on their positions.

Banks Want Exclusive Rights, Lawmakers Say No

Here’s where things get messy. South Korea’s financial regulators put forward a plan that would only let banks and major financial institutions issue stablecoins. They say these organizations already have the capital reserves and compliance infrastructure to handle it properly. From their perspective, letting anyone else into the game creates unnecessary risks.

A bunch of lawmakers immediately pushed back. They told local media the bank-only approach basically hands out a government-protected monopoly. Multiple National Assembly members said this goes against the whole point of cryptocurrency, which is supposed to open up financial services rather than lock them down.

The fintech industry has been lobbying hard against the restrictions. Company representatives have pointed out that in other countries, non-bank entities issue stablecoins successfully under proper supervision. They think South Korea’s regulators are being too conservative and will end up stifling innovation.

Nobody’s found middle ground yet. The Financial Services Commission hasn’t budged from its bank-only stance, and lawmakers keep voting down proposals that don’t include broader access. 

Also Read: Mirae Asset Eyes $100M Deal to Buy Korean Crypto Exchange Korbit

Exchanges Already Spent Millions Getting Ready

This delay is expensive for crypto platforms. Upbit, Bithumb, and other major exchanges hired new compliance staff, upgraded their tech systems, and reorganized their operations. We’re talking about investments in the millions of dollars, all based on regulations that were supposed to arrive months ago.

Now those platforms are in a weird spot. They can’t finalize everything because the actual South Korea crypto rules don’t exist yet. But they also can’t just scrap their preparations, since the regulations will eventually happen. Exchange executives have been pretty candid in interviews about how frustrating this is.

Smaller exchanges got a temporary reprieve. A lot of them thought the compliance costs would put them out of business. The postponement gives them more runway, but it also means another year of not knowing whether their business model will even be legal under the final framework.

One exchange CEO told a Korean business newspaper that his company would honestly prefer strict rules implemented tomorrow over this ongoing uncertainty. At least then they’d know what they’re dealing with.

What This Means for Competition in Asia

South Korea’s delay isn’t happening in isolation. Japan already updated its stablecoin rules this year. Banks and trust companies there now have clear procedures for issuing yen-backed digital tokens. Singapore keeps expanding its regulatory framework too, and companies like the certainty.

Hong Kong launched its crypto exchange licensing system a few months back. Applications came flooding in from international platforms, including some that probably would’ve picked Seoul if South Korea had its act together. That’s the market share the country is losing while politicians argue.

Korean crypto companies trying to expand internationally are running into problems. When they apply for licenses abroad, regulators ask about their home country’s regulatory environment. Having to explain that South Korea can’t pass basic crypto rules doesn’t help their case.

Some blockchain startups have already moved. They’ve relocated to Singapore, Hong Kong, or even Japan rather than wait around for South Korea crypto rules that might not arrive for another year or more. Venture capital investors have noticed too. Funding for Korean crypto projects has declined compared to competitors in other Asian markets.

Also Read: South Korea Launches Inquiry into Crypto Exchange Fees

Nobody Knows When This Actually Gets Resolved

Parliamentary committees still need to reconcile completely opposite views on stablecoin licensing. Given how dug in both sides are, that could easily drag into next year. A few political analysts think this might not get settled until after the next election cycle, which would push implementation into 2026.

The Financial Services Commission keeps saying it won’t lower consumer protection standards. Bank regulators have backed them up, suggesting they’d rather have no framework at all than one they consider dangerous. That’s a pretty hard line.

South Korea’s crypto market keeps chugging along regardless. Trading volumes there regularly beat those of much larger economies. People are buying and selling digital assets under rules that were written years ago, before anyone had heard of DeFi or considered that institutions might get seriously involved.

The Virtual Asset User Protection Act was supposed to bring things up to international standards set by organizations like the Financial Action Task Force. It included provisions for mandatory insurance at exchanges, stricter customer verification, and better separation between user assets and company funds. All of that is on hold now.

Also Read: On-Chain vs. Off-Chain Transactions: What’s the Difference?

Some industry groups have suggested compromise solutions. A tiered licensing system where both banks and qualified fintech companies could issue stablecoins under different oversight levels. Regulators haven’t said whether they’d even consider that kind of middle ground.

The longer this drags out, the more South Korea risks falling behind regional competitors. Companies make decisions based on regulatory certainty, and right now, the country isn’t offering any.

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