[New Government Digital Asset Strategy ③] Draft Framework Act Forms… Accelerating Institutionalization

# South Korea Enhances Digital Asset Legislation Amid Political Dynamics As the National Assembly accelerates its discussions on establishing fundamental digital asset laws, attention is focusing on policy directions and legislative timelines. Multiple draft bills by ruling party lawmakers are slated for public release later this month. Concurrently, the South Korean government plans to unveil its version of the legislation in the latter half of this year, signifying substantial progress towards institutionalizing digital assets. As governmental and National Assembly discussions progress, stakeholders are keenly observing how digital asset regulation will materialize. Adding complexity to the legislative efforts are potential changes in the leadership of the Financial Services Commission (FSC), which could impact both the pace and direction of these initiatives. # Draft Bills from Two Ruling Party Factions Within the ruling Democratic Party, two distinct factions are drafting foundational digital asset laws. One group, led by the Digital Assets Committee chaired by Representative Min Byung-deok, and another, focused on the political oversight committee headed by Representative Kang Jun-hyun, are actively preparing their respective versions. Representative Min formally introduced a comprehensive digital asset legislative proposal on October 10. His bill aims to define digital assets and set regulatory measures, including entry and operational guidelines, issuance procedures, disclosure requirements, and prohibitions on unfair trading practices. It places special emphasis on regulating stablecoins to balance industry development with user protection. Since early 2023, the oversight committee has been hosting forums, organized by Representative Kang, to deliberate on legislative directions and key issues. The resultant draft, developed with the Korea Fintech Industry Association, is expected to be revealed soon. A public briefing on October 17 will further detail the committee’s draft, covering its essential provisions and contentious points. # Divergent Core Issues Between Drafts Although Representative Kang’s draft remains undisclosed, significant differences between the two proposals are emerging. A primary divergence is seen in the authority over listing examinations, the role of regulatory associations, stablecoin oversight, and licensing frameworks. Representative Min’s draft assigns listing examination authority to a new legal association, aiming to grant the organization a quasi-public role. This approach seeks to enhance regulatory efficiency by separating supervisory and auditing functions. Conversely, Representative Kang’s draft seems to keep listing authorities within exchanges while appointing the association as a centralized operational entity for disclosures. This method aims to streamline information access and boost market transparency, inspired by the electronic disclosure system managed by the FSC. # Government’s Second-Phase Legislative Plans Parallel to the National Assembly’s efforts, the government, led by the FSC, is progressing with its second-phase digital asset regulation legislation. During a January meeting headed by FSC Vice Chairman Kim So-young, key policy focuses, including entry regulation adjustments, stablecoin governance, and the establishment of listing and disclosure frameworks, were identified. The government intends to release its legislative proposal in the latter half of 2023. Speculation regarding potential changes in FSC leadership adds uncertainty to the legislative progress. Despite current Chairman Kim Byung-hwan having more than two years left in his term, reshuffling of top financial officials has frequently coincided with changes in administration. # Leadership Speculations Versus Presidential Vision Potential candidates for the FSC Chairmanship include Do Kyu-sang, a former FSC Vice Chairman and current head of Samjong KPMG's Economic Research Institute, and Sohn Byung-doo, a former CEO of the Korea Exchange and current head of Toss Insight. Both have previously expressed digital asset perspectives. During his tenure at the Korea Exchange, Sohn emphasized the importance of digital assets as mainstream investments and advocated for a regulatory framework. He suggested entities like the Korea Exchange could play critical roles in monitoring, disclosure, and clearing functions for the market. Similarly, Do previously addressed digital asset instability and highlighted regulatory needs while at the FSC, proposing policy solutions like self-regulation, consumer protection, and measures against unfair trading practices. He actively contributed to discussions on non-fungible tokens (NFTs) and potential regulatory frameworks for them. Despite speculation, industry experts believe that digital asset institutionalization depends more on presidential resolve than leadership. “While the identity of the FSC Chair is significant, the ultimate success of regulation hinges on clear presidential directives,” one legal expert on digital assets remarked. "If the President sets a decisive policy tone, corresponding government agencies will follow. Without such resolve, even rapid personnel appointments may not address pressing issues." As legislative and governmental processes unfold, all eyes are on South Korea's ability to create a robust digital asset framework that balances innovation with market stability.