Korea Investors Service Prepares to Rate Credit in Digital Finance

Korea Investors Service (KIS) is developing new criteria to assess the credit risks of digital financial products, such as tokenized securities and stablecoins. These digital assets have become increasingly integrated into the mainstream financial system, with a market value of about $300 billion since 2020.

According to Chung Hyuk-jin, head of KIS' credit standards group, digital financial products can carry unique risks that differ from conventional products, even when they have the same credit rating. He emphasized the importance of incorporating technological risks alongside traditional measures such as an issuer's repayment capacity and the quality of underlying assets.

KIS has grouped these risks into four categories: platform risk, smart-contract risk, external risk, and risks related to the representation of legal rights. The agency is also creating a framework for assessing stablecoins, which will depend on Korea's legal and regulatory regime.

Kim Hong-mi, head of KIS' Structured Finance 2 Department, stated that global rating firms have already developed frameworks for evaluating stablecoins, with Moody's examining both redemption capacity and the ability to maintain a stable value against fiat currencies. She noted that qualitative factors, such as an issuer's shareholder base and business relationships, may also play a role in assessing stablecoin risks.

The National Assembly is preparing to legislate the Digital Asset Basic Act, which aims to provide a comprehensive regulatory framework for digital assets. Debates are ongoing over provisions involving eligibility requirements for stablecoin issuers and a proposed 20 percent ownership cap on major shareholders of cryptocurrency exchanges.