South Korea’s FSC plans to ban interest payments on stablecoins, with a new crypto law expected to come into force by the end of 2025, with the aim of fostering innovation in digital assets while protecting financial stability.
summary
- South Korea plans to follow global trends like the US’s GENIUS law and ban stablecoin holders from earning yield.
- Banks will lead the issuance of stablecoins, with fintech companies acting as technology partners. Virtual currency exchanges will be prohibited from issuing their own stablecoins.
- A “Phase 2 Virtual Currency Law” is expected to be enacted by the end of 2025, with follow-up regulations to ensure safe and efficient implementation and support for payments, remittances and cross-border transactions.
Proposed stablecoin interest rate ban reflects US regulations
As first reported by Yonhap News, Financial Services Commission Chairman Lee Ok-won announced the policy on October 20 during the National Assembly Finance Committee’s national audit. Under the proposed rules, stablecoin holders would no longer be able to earn revenue just by holding their tokens. The policy aims to maintain financial stability while allowing innovation in digital assets.
The move is in line with the US GENIUS law, which prohibits stablecoin issuers from offering interest or yield to holders. The law aims to distinguish payment stablecoins from traditional bank deposits and protect against potential risks associated with yield-bearing digital assets.
However, it is worth noting that the GENIUS Act has faced criticism for allowing crypto exchanges to offer rewards in stablecoins, potentially circumventing the interest ban. The loophole has raised concerns among U.S. banks about the risk of significant deposit outflows that could destabilize the financial system.
Korean Virtual Currency Law Phase 2 to be submitted this year
Furthermore, Lee said that in order to clearly separate banks from other financial services, banks should take the lead in issuance of stablecoins, and fintech companies should only act as technology partners. Virtual currency exchanges will be prohibited from issuing their own stablecoins.
The FSC plans to submit the “Stage 2 Virtual Currency Law” to Congress by the end of this year. Authorities are considering a framework that would enable the stablecoin market to support payments, remittances, and other financial services, including cross-border transactions, and include sufficient safeguards. This law will be accompanied by follow-up regulations to ensure prompt and effective enforcement.
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