(Kitco News) - The government of South Korea published new guidelines on Monday outlining which blockchain-based tokenized assets, or digital securities, will be subject to regulation under the country’s capital market rules. This development comes as South Korea is looking to establish comprehensive regulation of the digital asset sector.
According to the guidelines published by the Financial Services Commission (FSC), blockchain-based tokens are to be regulated as securities if they have characteristics that align with the Capital Markets Act definition of a security, which is a financial investment instrument for which investors do not have an obligation to make additional payments on top of the original investment.
The term “security token” refers to a security that has been digitized using distributed ledger technology, according to the guidance. Included in this definition are digital assets that provide a stake in the operation of a business, provide investors with access to profits generated from a business, or offer rights to dividends or residual property.
Stablecoins and digital assets that have no issuer and do not have to "fulfill the obligations commensurate with the investor's rights," are not likely to fall under this definition of security tokens.
Cryptocurrencies and other digital assets that qualify as securities will be regulated under the Capital Markets Law, while those that do not fit the provided definition will be subject to the regulations for digital assets that are currently being developed.
The FSC will determine which digital assets have security-like characteristics on a case-by-case basis, while issuers and brokers such as cryptocurrency exchanges, will be held responsible for ensuring that any evaluations they conduct align with regulations.
The new guidelines come as the FSC is preparing South Korea’s financial sector for the legalization of the issuance and distribution of securities tokens. The ultimate goal is to create an over-the-counter market for securities tokens by allowing entities to directly issue such tokens without financial institutions. The FSC intends to submit a proposal to incorporate these updates to existing financial laws by the end of H1 2023.
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South Korea has been one of the most active countries in the world when it comes to establishing comprehensive regulations for the crypto and blockchain sectors. Lawmakers in the country’s National Assembly are currently considering 17 separate crypto-related legislative frameworks, including the bill to establish a separate market for digital securities.
The ultimate goal of these efforts is to create the Digital Asset Basic Act (DABA), an all-encompassing legal framework for regulating Korea's dynamic crypto industry.
Multiple South Korean firms have been eagerly awaiting the release of these new guidelines and have been busy preparing their digital asset platforms to handle and/or issue tokens in anticipation that the FSC will give them the go-ahead to offer such services. This includes the Korea Exchange – the nation’s only securities exchange operator – banking giants Kookmin and Shinhan, and Kiwoom Securities.
The city of Busan is also looking to make STOs an integral part of its Digital Assets Exchange project, which is being developed in conjunction with multiple top international cryptocurrency exchanges, including Binance.
