South Korea to ban interest payments on stablecoins

South Korea's Financial Services Commission (FSC) Chairman Lee Eog-weon announced that the agency is in the final stages of drafting legislation regulating stablecoins. The bill is expected to be submitted to the National Assembly by the end of this year. One of the key initiatives is a ban on interest payments on stablecoins.

Comparison with US Legislation

This initiative is similar to the GENIUS Act, which is in effect in the US and prohibits stablecoin issuers from offering interest to token holders. The purpose of this law is to clearly distinguish between payment stablecoins and bank deposits. The GENIUS Act has been criticized by US banks, who fear that the possibility of earning rewards for holding stablecoins on crypto exchanges could lead to an outflow of deposits from traditional banks.

The Role of Banks and Fintech Companies in South Korea

Lee Yeog-won emphasized that stablecoins should be issued exclusively by banks, while fintech companies should act only as technical partners. Under the new regulations, cryptocurrency exchanges will be prohibited from issuing their own stablecoins in South Korea. The FSC also plans to include provisions in the legislation allowing the use of stablecoins for payments and remittances, including international transactions.

Requirements for Issuers

FSC Vice Chairman Kwon Dae-young proposed setting a minimum capital requirement for stablecoin issuers of 5 billion won (approximately $3.52 million). The regulator may require issuers to hold more than 100% of their reserves in highly liquid assets, such as government bonds. The proposed regulations also include licensing of issuers, requirements for reserve asset management, guarantees of user redemption rights, and compliance with international regulatory standards.

Tightening Cryptocurrency Lending Regulations in South Korea

In September, the FSC tightened cryptocurrency lending regulations, requiring interest rates not to exceed 20%. The Commission explained these measures as necessary to protect investors from fraud and risks associated with the volatility of the cryptocurrency market.

In Conclusion

Thus, South Korea is taking significant steps toward regulating stablecoins in an effort to create a safe and transparent financial environment. The ban on interest payments and strict requirements for issuers could significantly change the country's digital asset market, ensuring consumer protection and the stability of the financial system.