The Democratic Party's digital assets task force and the Financial Services Commission have drawn up a compromise to expand the range of stablecoin issuers from a bank-centered model to include fintech firms, but they excluded the Digital Assets Framework Act from the agenda of a party-government meeting to be held on the 19th.

The National Assembly and the industry said the Democratic Party will hold a party-government meeting with the Financial Services Commission on the 19th at the National Assembly in Yeouido, Seoul, to discuss pending issues such as the foreign exchange rate, the stock market and a supplementary budget after the Middle East war.

But the Digital Assets Framework Act was left off the agenda for the meeting, it was reported. The government and the ruling party had originally planned to hold a party-government meeting on the 5th to discuss the final draft of the Digital Assets Framework Act.

But as stock market jitters grew amid worsening conditions in the Middle East, the meeting was pushed back, and the bill discussion has since slipped down the list of priorities. Given that the government presented establishing a stablecoin regulatory framework as a key task for the first quarter of this year, there is a view that disruptions to the March legislative target have become inevitable.

Recently, the Democratic Party task force and the FSC prepared a compromise that would allow central and local governments and public institutions to participate in issuance under the existing bank-centered structure, while also allowing fintech firms to lead issuance.

The FSC has reviewed a plan for banks to hold 50 percent plus 1 share of an issuance consortium's equity, reflecting the views of the Bank of Korea. It was an approach that put stability first given that stablecoins could have currency and payment settlement functions.

In contrast, politicians and the industry have consistently argued that an overly strong bank-centered structure could block innovative firms from participating and slow the formation of the market.

The compromise aims to maintain banks' role while widening the scope of issuers to secure policy flexibility. But the plan is also not a final version, and could be adjusted again in future party-government consultations.

Unlike the debate over issuers, authorities are taking an even more cautious stance on corporate participation in the digital asset market.

Some recently speculated that the FSC is considering excluding stablecoins from permitted investment products in corporate digital asset trading guidelines it is preparing, but the FSC said nothing has been decided on whether to exclude specific digital assets such as stablecoins from investment targets.

Behind this caution is that stablecoins may expand beyond being an investment product into payment and remittance functions. The government plans to push in the second half for measures to regulate cross-border stablecoin transactions and revisions to the Foreign Exchange Transactions Act.

If corporate trading and the scope of use are expanded first before institutional arrangements are completed, burdens could inevitably grow because multiple systems would have to follow, including foreign exchange rules, anti-money laundering and accounting standards.

Discussions over the financial sector's entry into the digital asset market are following the same flow. Recently, financial authorities were reported to be reviewing a plan to gradually ease separation rules between finance and industry that have been maintained since 2017, for the first time in 9 years.

Rather than allowing banks and securities firms to hold digital assets directly or manage their own capital, authorities are placing more weight on first allowing equity investments in blockchain infrastructure firms and custodians. It is an approach to open areas sequentially starting with those that have a relatively small impact on the market.

The market sees that further delays in institutionalising a won-based stablecoin could mean missing time to respond to the spread of dollar-based stablecoins.

An industry official said, "It appears they do not intend to open issuance, distribution, investment and payment functions at the same pace." The official added, "It seems the compromise is to widen issuance to expand institutional participation, while allowing corporate investment and real-world use step by step as they check risk transmission and foreign exchange rule issues."