Recent Terra Fallout Triggers Regulatory Actions in Japan, South Korea, US and UK

The collapse of native Terra ecosystem assets LUNC and USDT in May raised concerns about investor protection and called into question the “stability” of stablecoins. The crash not only demonstrated the volatility of digital assets, but also highlighted the fragility of this nascent space. In response, various financial authorities and regulators around the world have shown even greater interest in the space over the past few weeks.

Here’s a roundup of jurisdictions where regulators have stepped up their efforts:

South Korea to institute digital asset regulator this month

Last week, South Korean authorities met to discuss the consequences of Terra and reportedly questioned several exchanges, including Upbit. Calls for strict regulation have compelled the government to set up a digital asset committee to oversee the digital asset space, according to a local report.

The committee, which will be unveiled later this month, will work with a joint body of representatives from the five major local exchanges – Bithumb, Coinone, Cobit, Gopax and Upbit. It will operate under the Financial Watchdog but will be dissolved after the enactment of the “Digital Assets Framework Law”, which will introduce a formal government entity to oversee the sector. The question of which body oversees the Korean crypto space was without a concrete answer before the Terra crash.

The Financial Supervision Service has only recently taken on the role of assessing and mitigating the risk presented by the virtual assets offered at the national level. This was after being given the authority to act as the principal authority on matters relating to virtual assets. The FSS has since announced its intention to delegate search operations to public trust institutions as a first step in this direction.

Operators of digital asset trading platforms have also been banned from seeking exposure to crypto assets. This comes after the revelation that Upbit, under Dunamu, had exposure to LUNC before listing the asset on its platform in 2019. The decision to ban exchange operators from engaging in transactions and brokerage transactions aims to improve transparency.

UK and US regulators warn of risks stablecoins pose after UST implosion

Outside of Korea, other jurisdictions have stepped up their regulatory efforts driven by the need to anticipate the potential threat that stablecoins pose to financial stability. The UK, in particular, is concerned about the damage stablecoins can cause to the wider financial system.

“Since the initial commitment to regulate certain types of stablecoins, events in the crypto-asset markets have further underscored the need for appropriate regulation to help mitigate risk to consumers, market integrity, and security. financial stability”, Her Majesty’s Treasury described in a three-part consultation document.

The government will allow the country’s financial watchdog, the Financial Conduct Authority, to oversee the payment space. The document also recommended that the Bank of England, on the other hand, manage systemically important payment systems.

US financial agencies were equally concerned. Rohit Chopra, the head of the Consumer Financial Protection Bureau, said in an interview with Bloomberg that the crash disproved the idea that stablecoins could replace the dollar.

Japan bans the issuance of stablecoins by non-bank entities

Japan’s parliament on Friday passed a bill that limits the issuance of stablecoins to registered transfer agents, banking institutions and trust companies only. The new framework aims to protect investors and safeguard the financial system from the instability that could result from the adoption of stablecoins.

The legislation is expected to come into force next year, the Nikkei news outlet reported. Japan’s financial watchdog, the Financial Services Agency, is also preparing to separately file new regulations for stablecoin issuers in the coming months.

About Meredith Campagna

Check Also

George Chaconas and Juan Pardo of Performance Brokerage Services advise on the sale of Star City Motorsports and Platte River Harley-Davidson in Nebraska

Top left to right – Robert Kay and Michael Maledon and bottom left to right …