Korea has finally enacted legislation that supports tokenization and security tokens after the National Assembly passed revisions to the Electronic Registration Act and the Financial Investment Services and Capital Markets Act (FSCMA). It has been a protracted process as a different bill was introduced in 2023 but failed to progress. The key legislative change is the recognition of security tokens and tokenized securities that use distributed ledger technology (DLT) for record keeping and smart contracts.
An unusual step is the involvement of the Korea Securities Depository (KSD) in a wide range of security tokens, not just for listed securities. Security token issuers have to notify and apply for registration with the KSD, which has been working to support this for several years. The passage of the law, which comes into force in January 2027, means that unlicensed intermediaries cannot engage in security tokens. Decentralized finance (DeFi), which usually raises the issue that there are technically no intermediaries, has not been mentioned.
Previously in Korea some of the assets that would be used in real world asset (RWA) tokenization could not be dealt with by regulated investment firms. Specifically so-called investment contracts involving a group of investors buying a share in livestock or a piece of artwork could not be dealt with by securities firms. It required the seller to find investors themselves. The new legislation removes this restriction, enabling investment firms to intermediate such transactions.
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