South Korea published guidelines on Monday for defining what specific cryptocurrencies would fall under regulations applicable to financial securities. The move is part of an ongoing review of digital assets and the drawing up of comprehensive regulations for the sector.

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Fast facts

  • South Korea’s Financial Services Commission (FSC) said that blockchain-based tokens will be treated and regulated as securities if they have corresponding characteristics laid out in the country’s Capital Markets Act.
  • The Capital Markets Act defines “securities” as financial investment instruments for which investors do not have an obligation to make additional payments on top of the original investment. 
  • The FSC said examples of digital assets that are likely to be classified as securities include those that provide a stake in the operation of a business, the rights to dividends or residual property, or have the issuer attribute profits generated from the business to the investors.
  • Cryptocurrencies or other digital assets that have the characteristics of a security will be regulated under the Capital Markets Law, while those outside that definition will be governed by regulations for digital assets that are currently being prepared.
  • The FSC said the security-like characteristics of a cryptocurrency and other digital assets will be determined on a case-by-case basis. The issuers and brokers, such as crypto exchanges, will be held responsible for making such evaluations in line with the regulations, the FSC added.
  • The FSC says the new guidelines are to prepare the financial sector for the upcoming legalization of the issuance and distribution of securities tokens. It aims to allow entities to directly issue such tokens without financial institutions, and plans to establish an over-the-counter market for such tokens. It will submit a proposal to incorporate such updates to existing financial laws within the first half of 2023, the FSC said.
  • Shinhan Securities, the largest securities company in South Korea by net profit, announced Monday that it has formed what it called the “STO Alliance” to expand the securities tokens ecosystem.

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