Today Korea’s Financial Services Commission (FSC) outlined plans for new regulations around ‘token securities’, the wording it uses for security tokens or digital securities based on blockchain. Additionally, numerous industry participants are preparing for tokenization, including Shinhan which announced plans for a new security token alliance.
According to the FSC, existing regulations including the Electronic Securities Act would apply to token securities, but the legislation needs updating to apply them to tokenization expressly. In addition to tokenized stocks and bonds, the rules would also be relevant for tokenized real estate, art and other assets. Meanwhile, cryptocurrencies are separately subject to the Framework Act on Digital Assets, which is currently in the works.
The regulator used the analogy of food, saying the food is the same regardless of the container in which it is served. Likewise, a security could be paper-based, electronic (centralized) or based on distributed ledger technology (DLT).
Apart from applying existing legislation to token securities, the FSC is planning new rules in two areas. Currently, issuer account management must be done by a securities firm. The new law will provide for an account manager that is not a conventional securities firm but registers and manages token securities on a blockchain. The FSC’s rules will specify a minimum capital requirement and staff qualifications for this new type of account manager, as well as investor compensation. According to the Korea Securities Depository, the intention is for this account management to be done by the issuer.
The other major change will be the introduction of over the counter (OTC) trading for investment contracts and beneficiary certificates, the structures often used for tokenized real estate, art and alternative assets. There will be some exemptions to sales disclosure levels, although investment limits will apply.
Korean securities industry preps for tokenization
Today Shinhan Investment and Securities announced it would establish and STO (security token offering) Alliance. According to the company, the STO Alliance will set standards and best practices. No other members were announced at this stage.
Meanwhile, the Korea Exchange is reportedly working with the Korea Securities Depository on a task force to develop a digital stock market to be launched this year.
It’s also been reported that KB Securities and Kiwoom Securities are preparing to launch STO platforms this year. Last year KB Securities invested in the Singapore-based tokenization platform ADDX.