Bank of Korea (BOK) lawyers proposed a regulatory framework requiring stablecoin peer-to-peer wallet transactions exceeding $10,000 to occur only between 'certified wallets,' according to an academic paper published on the 8th in the Korea Citation Index (KCI). The paper, authored by BOK lawyer Choi Ji-young and BOK Digital Currency Team Manager Park Jun-young, was published in Banking Law Research journal. The proposal addresses a regulatory blind spot in peer-to-peer wallet transactions, where customer identification is difficult due to decentralized wallet structures and individuals' ability to create multiple wallets and transfer assets easily. The framework draws from the Foreign Exchange Transaction Act's existing requirement to report cash movements of $10,000 or more.
BOK Lawyers Propose $10,000 Threshold for Certified Wallet Transactions
The paper titled 'Regulatory Measures for Stablecoins under the Foreign Exchange Transaction Act' proposed that stablecoin transactions exceeding $10,000 require pre-registration and certified wallet usage. The proposal references the Foreign Exchange Transaction Act enforcement ordinance's $10,000 reporting threshold for foreign currency movements. According to the paper, this approach allows monitoring of large-scale foreign exchange flows while permitting smaller peer-to-peer transactions.
The authors argued against full prohibition of peer-to-peer wallet transactions, instead recommending enhanced cross-border transaction monitoring systems based on international precedents. The paper specifically referenced European Union (EU) practices requiring transaction and user information collection for transfers involving unverified wallet addresses.
For transactions not conducted through service providers, the paper proposed a blacklist approach that permits peer-to-peer stablecoin transactions in principle but restricts wallet addresses used for illegal transactions. The paper stated this aligns with the government's foreign exchange system reform direction. However, for large-scale transactions requiring monitoring, the paper recommended requiring pre-registration and allowing only certified wallet transactions.
Regulatory Framework Defines Stablecoins as Electronic Payment Instruments
The paper proposed defining stablecoins as electronic payment instruments under the Electronic Financial Transactions Act, which would classify them as foreign payment instruments under the Foreign Exchange Transaction Act. The authors noted that while stablecoins share structural similarities with electronic money under the Electronic Financial Transactions Act—transferring monetary value to an issuer's parent account and issuing equivalent value—they differ because public blockchain-issued stablecoins can transact without merchant contracts.
The paper recommended that the Electronic Financial Transactions Act define stablecoins as a new category of electronic payment instruments. Even if the forthcoming Digital Asset Basic Act separately defines stablecoins, the paper argued that incorporating them into the Electronic Financial Transactions Act framework is preferable because protective measures already exist.
Under this structure, stablecoin issuers that are not financial companies would need to register as specialized foreign exchange business operators, according to the paper. The paper added that distributors should be regulated under registration requirements similar to the newly established virtual asset transfer business under the Foreign Exchange Transaction Act.
Implementation Challenges Include Mixing and Split Transactions
The paper acknowledged limitations in the proposed regulatory approach, including inability to sanction transactions using newly created wallets, funds that underwent mixing (money laundering), or split transactions designed to circumvent regulations. To address these gaps, the paper proposed strengthening identity verification and transaction history verification at on-ramp and off-ramp stages, and requiring service providers to establish evasion detection systems using analytical tools.
The paper emphasized the importance of establishing monitoring systems to regulate illegal foreign exchange transactions conducted through stablecoins without proper reporting or through false declarations. The authors noted that unlike traditional foreign exchange transactions conducted through the SWIFT network with clear cross-border distinctions, stablecoins present ambiguous national boundary concepts.
As a solution, the paper proposed determining nationality based on the location or residence of the wallet's private key controller. The paper stated that considering overseas legislative examples, stablecoin issuers and distributors should register as foreign exchange business handling institutions or specialized foreign exchange business operators, with institutional grounds established to impose suspicious transaction monitoring obligations on these entities.
International and Domestic Precedents Support Regulatory Action
The Financial Action Task Force (FATF) issued a report in March focused on stablecoins and non-custodial wallets, recommending that "jurisdictions should actively monitor macroscopic vulnerabilities and loopholes in the stablecoin ecosystem, including the scale and risks of peer-to-peer (P2P) transactions through non-custodial wallets and informal or unregistered redemptions."
Professor Jeong Soon-seop of Seoul National University Graduate School of Law stated at a symposium titled 'Foreign Exchange Market Environmental Changes and Policy Tasks' held in January at the Korea Federation of Banks building in Myeong-dong, Jung-gu, Seoul, that "regarding new response measures for stablecoins, means such as setting per-person holding limits or restricting movement itself in emergency situations can be considered."
Kim Shin-young, Director of BOK's Foreign Exchange Operations Department, stated at the 'Stablecoin Expansion Anti-Money Laundering (AML) System Trends and Review Forum' held in January at the National Assembly Members' Hall in Yeouido-dong, Yeongdeungpo-gu, Seoul, that "cross-border transactions using dollar and won stablecoins should all be included in regulatory targets, and it is necessary to clarify that non-custodial personal wallets, which are technically difficult to control, are also legally subject to regulation."
FAQ
What did Bank of Korea lawyers propose for stablecoin wallet transactions?
BOK lawyers Choi Ji-young and Park Jun-young proposed in an academic paper published on the 8th that stablecoin peer-to-peer wallet transactions exceeding $10,000 should only occur between 'certified wallets.' The proposal references the Foreign Exchange Transaction Act's $10,000 reporting threshold for foreign currency movements and was published in Banking Law Research journal indexed in KCI.
Why did BOK lawyers recommend certified wallet requirements for large stablecoin transactions?
The proposal addresses a regulatory blind spot in peer-to-peer wallet transactions, where customer identification is difficult due to decentralized wallet structures and individuals' ability to create multiple wallets and transfer assets easily. The paper stated that while smaller transactions can proceed through a blacklist approach, large-scale transactions requiring monitoring should require pre-registration and certified wallet usage to enable effective oversight of foreign exchange flows.
How would stablecoins be classified under the proposed regulatory framework?
The paper proposed defining stablecoins as electronic payment instruments under the Electronic Financial Transactions Act, which would classify them as foreign payment instruments under the Foreign Exchange Transaction Act. Under this structure, stablecoin issuers that are not financial companies would need to register as specialized foreign exchange business operators, and distributors would be regulated under registration requirements similar to virtual asset transfer businesses.
