Stablecoin Legislation Needs Clear AML Rules and Other Regulations for Broader Adoption

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South Korea’s legislative process on stablecoins, a key part of the proposed Digital Asset Basic Act, should include regulatory measures to address anti-money laundering risks and other vulnerabilities, a legal expert said.

Jung Young-ki, a lawyer at Kim & Chang, made the remarks at a seminar titled “Tasks After the Digital Asset Basic Act,” held on November 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 approval stage for issuance, regulators should verify whether issuers have AML capabilities in place, including a compliance officer, internal control systems and independent third-party audits, he said.

“Stablecoins offer high price stability, ample liquidity and no border constraints,” Jung said, adding that those characteristics could also make them vulnerable to misuse for money laundering.

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

Distribution participants such as exchanges already bear their own anti-money laundering obligations, and responsibilities between issuers and distribution participants should be clearly divided.

Jung also argued that lawmakers need to establish a legal basis for asset freezing and blocking procedures.

“If an issuer freezes assets at its own discretion, that could lead to legal disputes,” 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 should share them with issuers, and issuers should also share information on suspicious transactions with state agencies,” Jung said.

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

“Clear rules are better than unclear ones, even if they are strict,” he said. “If regulations are vague, businesses are left in a position where it is difficult to respond either aggressively or loosely.”