South Korea: Major banks team up to create security token after greenlight from financial regulator

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South Korea’s security token industry has recorded significant activity in recent times, with the latest being the addition of a trio of commercial banks to a token alliance spearheaded by NongHyup Bank.

The banks joining the consortium include the Industrial Bank of Korea, Woori Bank, and Shinhan Bank, according to a report by The Korea Herald. In terms of capitalization, the banks are all part of the top five largest South Korean banks, making it poised to be one of the largest security token alliances in the country.

Security tokens are digital versions of financial instruments indicating ownership interest in an asset with myriad uses, including representation of bonds, debt, publicly traded equity, and even intellectual property.

The alliance began in April with six fractional investment firms and financial institutions, Jeonbuk and Suhyup joining the coalition. The project achieved significant steam following interest from fintech firm Trackchaing, and Artpion joined the consortium, bringing the number of participants to 18.

De-facto consortium leader NongHyup Bank disclosed in a statement that it would be cross-pollinating ideas with other participants to ensure regulatory compliance. In the coming months, the alliance hopes to launch a platform for issuing token securities to create a thriving ecosystem.

In February 2023, the Financial Services Commission (FSC) announced that existing securities rules would regulate security tokens. Since then, the frenetic activity in the space has led experts to predict that the ecosystem will reach a valuation of $26.6 billion before the end of 2024.

Following the FSC’s announcement, Mirae Assets announced a collaboration with SK Telecom to launch a security token alliance. The largest securities firm in the country, Korea Investment & Securities, disclosed plans to float a blockchain platform for security tokens, roping in Shinhan Securities along the way.

The trigger for the new push

In a press release, the FSC notes a series of amendments may be floated to prevent potential violations of existing capital market laws regarding the issuance of security tokens.

“Under the Capital Markets Act, the relationship between the concept of securities and the form of securities issuance can be likened to food. The food does not change no matter what container it is served in,” said the FSC. “In other words, even if the form of issuance changes, the nature of securities does not change.”

Issuers of security tokens are expected to comply with rules governing traditional securities, with the regulator suggesting that stablecoins and tokens with no issuers will not be considered securities.

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