Stablecoin Bill Must Clearly Define AML Rules, Kim & Chang Lawyer Says

South Korea’s legislative process for stablecoins, a key part of the proposed Digital Asset Basic Act, should include regulatory measures to address money-laundering and other risks, according to a proposal presented at a seminar.

Jung Young-ki, a lawyer at Kim & Chang, made the remarks at a seminar titled “Tasks After the Digital Asset Basic Act,” held on Nov. 10 at the Korea Financial Investment Association’s Financial Investment Education Institute.

“It is important to accurately diagnose the risks posed by stablecoins and apply regulations that match those risks,” Jung said.

He first stressed that stablecoin issuers should be designated as entities subject to anti-money-laundering obligations.

At the licensing stage, regulators need to verify whether an issuer has AML capabilities in place, including a compliance officer, internal control systems and an independent third-party audit, he said.

“Stablecoins offer strong price stability, ample liquidity and no cross-border constraints,” Jung said. “Those characteristics can become risk factors that are exploited for money laundering.”

At the distribution stage, issuers should not be saddled with excessive responsibility, he added.

Exchanges and other distribution participants already have their own AML obligations. Responsibility should be clearly divided between issuers and distribution participants.

Jung also called for establishing a legal basis for procedures to freeze and block assets.

“If an issuer freezes assets based on its own judgment, legal disputes could arise,” he said. “The conditions and procedures for freezing, blocking and burning should be clearly defined.”

He also cited consistency with the Foreign Exchange Transactions Act and the creation of a public-private cooperation framework as key tasks for stablecoin legislation.

“If the government identifies wallet addresses linked to terrorist financing, it needs a system to share that information with issuers,” Jung said. “Issuers also need to share suspicious transaction data with state agencies.”

In Jung’s view, those provisions need to be included in the bill for a stablecoin ecosystem to take shape.

“Clear regulation is better than unclear regulation, even if it is strict,” he said. “If the rules are vague, companies are put in a position where it is difficult to respond either aggressively or loosely.”