South Korea broadens rules to determine which digital tokens are securities

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South Korea’s Financial Services Commission (FSC) has widened the scope of digital tokens that may be considered securities in the country in a new press release.

In a statement, the FSC noted that the new rules are designed to “prevent potential violations of the law” and protect investors’ interests. Going forward, South Korean authorities will regulate tokens with similar characteristics to traditional securities.

Tokens that offer holders a stake in a commercial enterprise or bestow dividend rights in corporate profits should be classified as securities, according to the release. The FSC notes that all issuers of digital assets with the identified characteristics must comply with the country’s Capital Markets Act.

“Under the Capital Markets Act, the relationship between the concept of securities and the form of securities issuance can be likened to “food,” and the form of issuance to a “bowl” that holds the food,” the FSC said. “The food does not change no matter what container it is served in.”

“In other words, even if the form of issuance changes, the nature of securities does not change,” the FSC wrote.

The FSC confirmed that it would overhaul the regime of token securities issuance and distribution regulatory system while allowing Security Token Offerings (STO) following the Capital Markets Law. Firms that violate the new rules in issuing securities to the public will face stern sanctions under the law, with digital asset exchanges sharing the burden of determining which virtual assets will operate as securities.

According to the FSC, tokens with no issuer and stablecoins will not be considered securities. The financial regulator adds that the Capital Markets Act will be applicable to tokens issued overseas that fall under the ambit of securities.

Moving on from the tragedies

South Korea is keen on moving away from the tragedies that rocked the local ecosystem in 2022, when the country suffered a rough patch with the collapse of the Terra ecosystem that led to massive losses for thousands of South Korean investors.

Regulators have implemented stricter rules for digital asset service providers, including tougher listing requirements and transparent disclosures. Parliamentarians are currently working on broader digital asset legislation for the industry while law enforcement agencies are pulling strings to secure the conviction of bad actors.

Watch: Tokenizing Assets & Securities on Blockchain