Today, the Financial Services Commission of Korea (FSC) outlined plans for new regulations on “token values,” the wording it uses for security tokens, or blockchain-based digital securities. Additionally, numerous industry participants are gearing up for tokenization, including Shinhan, which has announced plans for a new security token alliance.

According to the FSC, existing regulations, including the Electronic Securities Act, would apply to tokens, but the legislation needs to be updated to expressly apply them to tokenization. In addition to tokenized stocks and bonds, the rules would also be relevant to real estate, art, and other tokenized assets. Meanwhile, cryptocurrencies are separately subject to the Framework Law on Digital Assets, which is currently in the works.

The regulator used the analogy of food, saying that food is the same regardless of the container it is served in. Similarly, a security can be paper, electronic (centralized), or based on distributed ledger technology (DLT).

In addition to applying existing legislation to symbolic values, the FSC is planning new rules in two areas. Currently, the management of the issuer’s account must be carried out by a brokerage firm. The new law will establish an account manager who is not a conventional securities firm but who registers and manages token securities on a blockchain. The FSC 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 the management of this account 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 the sales disclosure levels, although investment limits will apply.

Korean Securities Industry Prepares for Tokenization

Today, Shinhan Investment and Securities announced that it would establish an STO (security token offering) alliance. According to the company, the STO Alliance will establish standards and best practices. No other members were announced at this stage.

Meanwhile, the Korea Stock Exchange is reportedly working with the Korea Securities Depository in a working group to develop a digital stock market to be launched this year.

It has also been reported that KB Securities and Kiwoom Securities are preparing to launch STO platforms this year. Last year, KB Securities invested in Singapore-based tokenization platform ADDX.