South Korea Speeds Up Crypto Regulatory Framework, Enters Phase 2 Amid Stablecoin Outflows

South Korea is speeding up its efforts to finalize its crypto regulatory framework, entering Phase 2. The Financial Supervisory Service (FSC) aims to complete legislation on stablecoins as soon as possible, with Yoo Young-jun, the Director General of Digital Finance Policy at FSC, noting that they are 'currently consulting with relevant agencies'.

The urgency comes amid a reported $346M stablecoin outflow from the country to overseas exchanges in June. This was equivalent to 78% of South Korean investors' net purchases of overseas stocks in June, prompting Rep. Lee Jong-wook of the main opposition People Power Party to call for swift updates to rules for the sector.

The country's first crypto framework, the Virtual Asset User Protection Act (VAUPA), was enacted in July 2024 and outlawed wash and insider trading. Phase 2, or the Digital Asset Basic Act (VABA), focuses on stablecoins, tokenization, crypto ETFs, and corporate access to the sector.

Domestic firms have been under a 9-year ban from the market, but this will be lifted. The FSC is also considering excluding U.S dollar stablecoins (USDT and USDC) to boost Korean Won (KRW) alternatives.