Ruling party's late-September hearing looms as make-or-break moment

Political burden mounts ahead of national audit

Corporate investment guidelines are ready, but timeline stays murky

Industry frets over mounting insurance, security certification costs

(Generated using ChatGPT)
(Generated using ChatGPT)

The government's push to introduce its Digital Asset Basic Act is approaching its first major test at the end of this month. Unless the bill is formally submitted around the ruling party's public hearing, officials will have to wait through the National Assembly's national audit and subsequent budget review. Only after that could they find another window during the regular Assembly session. If that window closes too, industry watchers worry the domestic digital asset sector's effectively frozen state could drag on even longer. With the basic framework for market order still unsettled, a string of key policy items remain stalled. These range from allowing corporate investment in virtual assets and letting a single exchange partner with multiple banks, to enabling major operators to pursue alliances and mergers.

Miss this month, and the bill slips to year-end: According to the National Assembly on Wednesday, the Financial Services Commission is pushing to submit its government-drafted Digital Asset Basic Act within the month. The bill would take the form of legislation sponsored by National Assembly Political Affairs Committee Chair Yoo Dong-soo, following coordination with the ruling party. Early this month had been widely floated as the likely timing for submission. That timeline appears to have slowed amid policy coordination among the government, ruling party and presidential office.

Unlike a formal government bill, this lawmaker-sponsored route skips review by the Ministry of Government and deliberation by the Cabinet. But because the act would newly regulate the entire industry, officials still need to hold preliminary consultations. The ruling party has already announced plans to hold a public hearing at the end of this month. If the government version emerges, observers expect it to surface just before that hearing.

The concern is that if the bill misses this month's window, its submission could effectively be pushed all the way to year-end. Officials view releasing the bill just ahead of October's national audit as politically risky, since it would likely only stir up regulatory controversy. The ruling party plans to hold the public hearing regardless of whether the government version is ready. But without it, the hearing could simply repeat existing discussions, raising doubts about whether it will even go ahead as planned.

As a result, expectations are shifting toward the first half of next year for the bill's final passage, later than the early-next-year timeline initially projected. Multiple lawmaker-sponsored bills governing digital assets and stablecoins are already pending in the Assembly. Even after the government version is submitted, consolidating the bills for review could take additional time.

"We had expected the law could be enacted early next year if the government version was submitted this month," an industry official said. "But given the regular Assembly session's schedule of the national audit followed by budget review, it now looks like we need to leave the timeline open through the first half of next year."

Corporate investment stuck in caution mode, unlikely this year: Allowing corporations to invest in virtual assets also appears unlikely to happen within this year. The Financial Services Commission unveiled a roadmap for corporate participation in the virtual asset market in February 2025, promising a phased opening of the market. So far, though, only trading by nonprofit corporations and exchanges themselves has been permitted.

Guidelines for allowing trading by listed companies and professional investment corporations — the segment drawing the most market attention — appear to have already been finalized in practice. They are said to cover investment limits, eligible assets, custody methods, and internal control and anti-money-laundering standards, though they have yet to be made public. "With a string of incidents at major exchanges recently, it seems the government, ruling party and presidential office have all turned more cautious about opening up the corporate market," an industry official said.

Introducing a "one exchange, multiple banks" system also appears to be getting pushed back as a task for after the basic act. Currently, each exchange partners with only a single bank for its real-name verified deposit and withdrawal accounts. That is not a legal requirement, but it has effectively hardened into a kind of shadow regulation, justified on anti-money-laundering and customer-verification grounds.

The industry has called for exchanges to be allowed to partner with multiple banks, including commercial banks with strong corporate finance capabilities, once the corporate market opens. If corporate clients start entering the market in earnest, mismatches between a company's primary bank and the exchange's real-name-account partner bank could make fund transfers and trading less convenient.

Financial regulators, however, remain cautious about allowing multiple banks. According to a review report from the National Assembly's Political Affairs Committee, the Financial Services Commission recently submitted an opinion on the matter. It said the effects on exchange market structure and anti-money-laundering systems have not been sufficiently verified. It added that exchanges' independent anti-money-laundering capabilities should first be examined after the second-phase law is enacted and takes effect. The more the basic act's timeline slips, the further the introduction of a multi-bank system gets delayed as well.

The crypto industry's "investment boomerang": With the timeline for enacting the Digital Asset Basic Act and allowing corporate investment slipping, virtual asset service providers, or VASPs, are also facing a tough situation. Custody-focused firms in particular had already taken out insurance, obtained security certifications and invested in infrastructure in anticipation of the corporate market opening. But as the timing of that opening grows murkier, there are concerns financial firms may increasingly hold off on further investment.

Obtaining certifications such as the Information Security Management System and Service Organization Control, along with institutional liability insurance, requires substantial spending. So the longer corporate clients are delayed, the heavier the burden grows for VASPs that specialize in custody services. "Only once the corporate market opens can the concept of 'value-added services' even emerge, which is the precondition for our business," an industry official said. "Investors have been waiting on the assumption that the outlines of the basic act would emerge within this year, but if it is delayed further, that becomes a real problem."

Adding to the burden, existing VASPs must all prepare renewal filings at once. This comes ahead of stricter enforcement of the Act on Reporting and Using Specified Financial Transaction Information, set to take effect in December. As they respond to reviews of personnel and physical requirements, capital and major shareholders, the delay in enacting the basic act adds another complication. It is raising the possibility that new VASPs' market entry will be pushed back further. Some in the market suggest that if regulators prioritize renewal reviews for existing operators first, processing of new business registrations could be delayed even more.


forest@heraldcorp.com
kyoung@heraldcorp.com