[E-Daily Marketin YunJi Kim Reporter] Amid expectations that a compromise version of the Framework Act on Digital Assets will take shape within this week, attention is focused on how the call for “strengthened internal controls”—included in the draft—will be reflected in the final legislation. In particular, since the advisory committee’s review report noted the need to bring digital asset operators’ internal control standards up to a level comparable to that of the financial sector, whether the final bill will strengthen audit committee requirements and conflict-of-interest prevention mechanisms is expected to emerge as a key issue.

While some argue that a certain degree of principle-based design is inevitable given that this bill marks the first legislation to institutionalize digital assets, others point out that the rigor of control mechanisms to protect investors cannot be overlooked, considering past instances of erroneous payments by exchanges caused by legislative gaps.

Discrepancy with the Capital Markets Act… 'Difference in Stringency' of Corporate Governance

According to the draft and the advisory committee’s review comments obtained exclusively by Edaily on the 3rd, it was confirmed that while the Framework Act on Digital Assets references the Capital Markets Act for its licensing and supervision framework, it is designed with a less stringent structure regarding key corporate governance regulations, such as conflict-of-interest controls and audit committee requirements.

Advisory committee members reportedly pointed out the gap with the Capital Markets Act and suggested that the bill needs to be supplemented to bring it to a level comparable to that of financial companies. The intent is to strengthen the internal control system beyond what is outlined in the current draft.

In particular, it was confirmed that while the draft incorporates Articles 24 (Internal Control Standards) and 26 (Qualification Requirements for Compliance Officers) of the Financial Companies Corporate Governance Act, it excludes Article 25 (Appointment, Dismissal, and Reporting Obligations of Compliance Officers). Article 25 stipulates that compliance officers must report matters related to internal control to the auditor or the audit committee.

In response, the legal community appears to be questioning the rationale behind excluding only this specific provision. An official familiar with the matter pointed out, “Excluding only an intermediate provision from a series of consecutive provisions in the Financial Companies Governance Act is typically a structure that requires a clear policy decision,” adding, “If the reporting obligation provision is omitted, the legal basis requiring the compliance officer to report violations of internal controls to the auditor or audit committee—even if they become aware of them—could be weakened.” He continued, “This could undermine the effectiveness of the internal control system managed by the compliance officer, and if the auditor or audit committee is left without such reports, there is a risk that accountability will become unclear.”

The existing Capital Markets Act and the Financial Companies Governance Act mandate that companies above a certain size (the Financial Companies Governance Act also requires the establishment of an audit committee for companies above a certain size, even if they are not listed) must have a majority of outside directors and establish an audit committee; they also specifically stipulate the expertise requirements for audit committee members and regulations governing transactions with related parties. These are institutional mechanisms designed to control conflicts of interest among major shareholders, management, and affiliates.

In contrast, while the draft stipulates internal control standards and a compliance officer system, it does not explicitly codify detailed requirements such as the composition ratio of audit committees, the independence of outside directors, or controls on transactions with related parties. Critics point out that it falls short of establishing a full-fledged audit committee system.

Advisory committee members also pointed out that, despite the structure in which platform operators simultaneously perform listing, brokerage, and custody functions, mechanisms such as controls on related-party transactions and ensuring board independence were not designed to the same level as those in the Capital Markets Act. According to the advisory opinion, one advisory committee member noted, “The qualification requirements for compliance officers are narrower than those under the Financial Companies Governance Act, so they need to be expanded,” adding, “Just as with financial companies under the Financial Companies Governance Act, it is necessary to establish a legal basis allowing digital asset operators to appoint compliance officers who possess expertise in financial laws, regulations, and supervision, such as personnel from financial regulatory authorities.”

Adhering to the Supervisory Framework While Relaxing Control Mechanisms… The Background

Another issue is the significant disparity in the density of corporate governance regulations when compared to the Capital Markets Act. The Capital Markets Act has institutionalized the independence of the board of directors and the authority of the audit committee based on the premise that failures in internal controls can directly lead to investor harm. In contrast, the draft is assessed as having focused primarily on establishing internal control standards and a compliance officer system, while structural control mechanisms designed to address conflicts of interest remain relatively weak.

The problem is that this difference in design is not merely a matter of regulatory stringency. In a structure where a platform simultaneously performs listing, trading, and custody functions, the rigor of conflict-of-interest controls is directly linked to the level of investor protection.

In this regard, it is reported that advisory committee members expressed concern about this at the previous meeting and pointed out the need for improvements. Concerns were also raised that, if regulations are not sufficiently rigorous, a relatively flexible environment could be created for large platform operators that have already secured market share and capital strength. This is because there is room for the platform’s discretion to expand in areas such as transactions with affiliates, the listing review structure, and the issuance of its own tokens.

So, did the regulatory framework simply follow the Capital Markets Act while adjusting the rigor of key corporate governance provisions? Some view it as problematic that a specific external legal expert contributed significantly to the drafting process. A financial industry official familiar with the matter stated, “While the official sponsor is a lawmaker’s office, the structure of the provisions and the overall framework were organized primarily by a single external legal professional,” adding, “It is difficult to rule out the possibility that the opinions of the industry—particularly those of some large operators—were reflected in the design direction during that process.”

The participation of external experts is a standard procedure. However, given that market confidence has been shaken by recent incidents such as erroneous payments, some point out that an explanation is needed regarding the background behind the relatively relaxed requirements for conflict-of-interest controls and audit committees. In the discussions on this compromise bill, it appears that issues such as shareholding limits for major exchange shareholders will be addressed, along with the question of how far to strengthen corporate governance controls compared to the Capital Markets Act and the Financial Companies Corporate Governance Act.