Lee Chan-jin, the head of the Financial Supervisory Service (FSS), has acknowledged the agency's insufficient capacity to respond to challenges posed by virtual assets. Industry experts view this admission as a predictable outcome, arguing that financial authorities have focused solely on restricting various businesses due to regulatory gaps, missing opportunities to understand and enhance their response capabilities in the new market.
According to the financial sector, during a National Assembly audit on October 19, Lee stated in response to a question about the FSS's ability to address on-chain fraud, "It is currently difficult to keep pace with the speed of developments." This has been interpreted by the industry as an acknowledgment that the FSS has struggled to keep up with the virtual asset sector.
Critics point out that the limitations faced by financial authorities stem from a regulatory-centric approach. Instead of establishing a solid regulatory framework and collaborating with businesses to build risk management systems and new ventures, the authorities have concentrated on imposing restrictions. This has resulted in a diminished understanding of the market and a lack of supervisory experience, ultimately hindering the agency's response capabilities.
Discussions surrounding the Digital Asset Basic Act, which pertains to stablecoins, have not progressed swiftly. Since the second half of last year, the legislative process has been stalled, with officials repeatedly stating that they are in the final stages of negotiations. On October 22, Financial Services Commission Chairman Lee Ok-yeon reiterated the need to expedite the regulation of virtual assets, asserting that the content of the Digital Asset Basic Act is prepared and that final discussions are ongoing. Concerns are growing that the relocation of the Financial Services Commission to Sejong may further delay the prioritization of the digital asset legislation.
As the regulatory gap extends, domestic companies are only able to conduct proof of concept (PoC) initiatives for stablecoin technology without being able to advance their core business timelines.
Participation in the corporate market remains limited. Plans to advance this sector, initially scheduled for the second half of last year, have been postponed. The competitive edge of domestic exchanges is also waning. While global exchanges diversify their offerings with derivatives, layer-2 networks, and payment services, domestic exchanges remain constrained by regulations, focusing primarily on spot trading. Unlike foreign exchanges, domestic platforms face restrictions on foreign participation.
The stagnation of the domestic market raises the possibility of losing ground to new foreign companies. Global firms such as Binance, OKX, BitGo, and Figment are increasingly entering the South Korean market. These companies are quickly encroaching on key areas by partnering with local exchanges like Coinone and Gopax, as well as financial groups like Hana Financial Group and KODA.
A financial sector insider noted, "On the surface, these partnerships appear beneficial, but in reality, the technological aspects may become reliant on foreign entities, leaving domestic firms with little more than a shell. This could lead to significant outflows of fees and added value overseas when the corporate market and digital asset exchange-traded funds (ETFs) are opened up in the future."
Consequently, there is a growing trend of exchanges abandoning virtual asset service provider (VASP) operations or seeking overseas contracts among custody firms.
Another financial sector representative remarked, "Once, domestic exchanges like Upbit and Bithumb were leaders globally, and current trading volumes in dollars and won indicate that the number of domestic users remains high. If we miss the opportunity to promote the market, we risk falling behind in blockchain technology and losing competitiveness in the global market."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.