Stablecoin Regulation: South Korea’s Critical Legal Crossroads Exposed by Bae, Kim & Lee

SEOUL, South Korea – March 2025 – Leading South Korean law firm Bae, Kim & Lee LLC has exposed significant legal ambiguities surrounding stablecoin operations within the nation’s borders. The firm’s comprehensive analysis arrives at a pivotal moment, just ahead of the country’s second phase of digital asset legislation. This examination reveals fundamental questions about how existing regulations apply to these crucial cryptocurrency instruments. Consequently, market participants face considerable uncertainty regarding compliance and operational boundaries.

Stablecoin Regulation in South Korea Faces Fundamental Questions

Bae, Kim & Lee, one of South Korea’s most prominent full-service law firms, has systematically outlined a series of unresolved legal issues. These issues directly impact the issuance, trading, and utilization of stablecoins. The firm’s scrutiny focuses on the application of current financial regulations to both international and potential domestic stablecoins. Therefore, exchanges, issuers, and users must navigate a complex and evolving legal landscape. The analysis specifically questions the status of major global stablecoins like Tether (USDT) and USD Coin (USDC) on domestic trading platforms. Moreover, it probes whether these assets could be classified as securities under Korean law, a determination with profound implications for licensing and disclosure requirements.

The Securities Classification Conundrum

The potential classification of stablecoins as securities represents a central concern in the legal analysis. This classification would trigger a completely different regulatory regime under the Financial Investment Services and Capital Markets Act. For instance, securities offerings require registration with the Financial Services Commission (FSC) and mandate detailed prospectuses. Currently, global regulators debate this point vigorously. The U.S. Securities and Exchange Commission has pursued actions against certain crypto entities, arguing some products are unregistered securities. Conversely, other jurisdictions apply payments-focused frameworks. Bae, Kim & Lee’s questioning highlights South Korea’s need for legislative clarity on this foundational issue before its digital asset market can mature securely.

Virtual Asset Service Provider Status and Operational Legality

Beyond securities law, the analysis investigates whether stablecoin issuers themselves could be deemed Virtual Asset Service Providers (VASPs). South Korea’s Specific Financial Information Act defines VASPs and imposes strict anti-money laundering (AML) and know-your-customer (KYC) obligations. If an issuer falls under this category, it must register with the Korea Financial Intelligence Unit (KoFIU). This registration process involves demonstrating robust compliance systems. The firm also raises practical questions about daily operations. For example, it questions the legality of businesses using corporate accounts to purchase stablecoins for settlement purposes. Additionally, it examines the compliance of decentralized finance (DeFi) platforms that offer interest on stablecoin deposits, a service that may resemble regulated financial offerings.

• Legal Status of Global Stablecoins: Are USDT and USDC legally recognized assets on Korean exchanges?
• Securities Law Application: Do stablecoins meet the definition of an investment contract under Korean law?
• VASP Classification: Must an issuer of a won-pegged stablecoin register as a VASP?
• Payment Instrument Legality: Can a private entity legally issue a won-backed stablecoin for payments?
• Corporate Use: Is using a corporate bank account to buy stablecoins for B2B settlements permissible?

The Path to a Korean Won Stablecoin

A particularly intriguing line of inquiry involves the creation of a Korean Won (KRW)-backed stablecoin. The firm examines the legal pathway for such an instrument to function as a payment method. Historically, the Bank of Korea has expressed caution about private stablecoins, emphasizing financial stability risks. However, the potential efficiency gains for cross-border trade and remittances are significant. The analysis suggests that new legislation must explicitly address reserve requirements, redemption rights, and issuer governance for any domestic stablecoin project to proceed with legal certainty. This development could mirror projects like Japan’s Progmat Coin or explore a public-private partnership model.

Exchange Listing Criteria and Consumer Protection Issues

The law firm’s examination extends to the gatekeepers of the crypto market: the exchanges. It questions what criteria domestic exchanges currently use to list stablecoins. Presently, exchanges like Upbit and Bithumb conduct their own due diligence, but a standardized regulatory framework is absent. This lack of standardization creates inconsistency and potential risk for investors. Furthermore, Bae, Kim & Lee highlights consumer-facing ambiguities. One key question involves the legality of purchasing stablecoins with credit cards. Such transactions could conflict with financial regulations designed to prevent debt-fueled speculation. These consumer protection gaps underscore the need for comprehensive rules that address both institutional and retail participation in the stablecoin ecosystem.

Context and Implications for South Korea’s Crypto Ambitions

This legal analysis does not occur in a vacuum. South Korea is a global cryptocurrency powerhouse with a highly active retail and institutional market. The government has pursued a dual-track strategy: fostering innovation while implementing strong consumer protections. The first phase of digital asset legislation, primarily focused on investor protection and exchange regulation, laid the initial groundwork. The upcoming second phase, expected to be debated in the National Assembly in 2025, aims to provide a more detailed framework for various digital asset types, including stablecoins. Bae, Kim & Lee’s report essentially provides a roadmap of the legal potholes that this new legislation must fill. International precedents, such as the EU’s Markets in Crypto-Assets (MiCA) regulation which provides clear rules for stablecoin issuers, will likely influence the Korean approach.

Expert Perspective on Regulatory Timing

Legal experts note that this period of uncertainty is both a challenge and an opportunity. “Proactive legal analysis by a firm of this caliber is invaluable,” states a professor of fintech law at Seoul National University, who prefers to remain anonymous for compliance reasons. “It identifies the precise friction points between innovative technology and existing law. The legislature now has a specific checklist. Clarity on these points will determine whether South Korea becomes a leader in the regulated digital asset economy or lags behind other jurisdictions that move faster.” The firm’s work underscores that regulatory certainty is a prerequisite for serious institutional investment and the development of complex financial products built on blockchain technology.

Conclusion

Bae, Kim & Lee LLC has performed a critical service by meticulously mapping the legal uncertainties surrounding stablecoin regulation in South Korea. The firm’s analysis highlights unresolved questions on securities classification, VASP status, payment legality, and exchange operations. These questions must be addressed by the forthcoming second phase of digital asset legislation to provide market certainty. As South Korea seeks to balance innovation with stability, clear and comprehensive rules for stablecoins will be essential. The resolution of these legal issues will shape the future of digital finance in one of the world’s most dynamic cryptocurrency markets.

FAQs

Q1: What is the main concern raised by Bae, Kim & Lee regarding stablecoins?
The primary concern is the lack of clear legal classification under current South Korean law, creating uncertainty about whether they are securities, payment instruments, or another asset type, which dictates the applicable regulations.

Q2: How could stablecoins being classified as securities impact exchanges?
If classified as securities, stablecoins would fall under the jurisdiction of the Financial Services Commission, requiring exchanges to obtain a securities brokerage license and adhere to strict disclosure and trading rules, significantly increasing compliance costs.

Q3: What is a VASP, and why does it matter for stablecoin issuers?
A Virtual Asset Service Provider is any business that offers crypto exchange, transfer, or custody services, as defined by South Korean law. If a stablecoin issuer is deemed a VASP, it must register with the KoFIU and implement rigorous anti-money laundering systems.

Q4: Why is the legality of using credit cards to buy stablecoins a question?
Financial authorities may view credit card purchases as a form of leverage or debt-financed investment, which could conflict with regulations designed to protect consumers from speculative losses and over-indebtedness in volatile markets.

Q5: When is South Korea’s new digital asset legislation expected?
The second phase of comprehensive digital asset legislation, which is expected to address stablecoins specifically, is currently under discussion and is anticipated to be debated in the National Assembly during the 2025 legislative session.