South Korea Gets Ready to Institutionalize Security Tokens

Financial regulators in South Korea are getting ready to bring security tokens under the purview of the country’s capital markets rules in an effort to formalize the products.

On Tuesday, South Korea’s top financial regulators, including the Financial Supervisory Service and Financial Services Commission (FSC) had a meeting with industry representatives at a seminar to discuss a strategy on how to approach new guidelines, after it was announced that financial regulators seek to bring security tokens under the scope of the country’s capital market rules.

The FSC plans to publish guidelines for the issuance and commercialization of security tokens by the end of Q4. Security tokens are blockchain-based digital forms of traditional securities. After it has successfully published the guidelines, the FSC plans to change the country’s existing electronic securities and capital market regulations to include security tokens. According to a summary of the seminar, as it stands, the capital market and electronic securities systems in South Korea do not support blockchain technology. The summary added that it is imperative to incorporate the issuance and distribution of security tokens into these regulatory frameworks to ensure investors and financial stability is protected.

The FSC has committed itself to bringing forward new rules for the cryptocurrency sector while anti-money laundering authorities scrutinize crypto platforms operating in the country.  

Crypto Could Pose a ‘Major Threat” to Financial Stability

While the FSC busies itself with publishing guidelines for the issuance of security tokens, a new report by the Korea Institute of Finance (KIF) indicates that the growing mainstream adoption of cryptocurrencies in the country could threaten the stability of the traditional financial system. A senior researcher at the KIF has suggested that the increasing number of firms investing in volatile markets may experience a profit loss which could lead to a “deterioration of asset quality” and risk damaging the firms’ reputations. Although the impact of cryptocurrencies in the country is still relatively low, the researcher added that the significant growth of the industry since 2019 shows that “the influence of virtual assets is expected to continue to expand.” The report added:

Considering the increasing number of related crimes, virtual assets may emerge as a major threat to financial stability.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.