South Korea Issues Guidelines on Security Tokens Ahead of New Regulation

UTC by Benjamin Godfrey · 3 min read
South Korea Issues Guidelines on Security Tokens Ahead of New Regulation
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The government of South Korea is very open to crypto as an asset class.

In advancing its reach to provide the much-needed regulation of the nascent crypto ecosystem, South Korea has issued a new guideline bordering on security tokens. In a Press Release published on Monday, the Financial Services Commission (FSC) highlighted how digital currencies should be treated based on their securities classification.

According to the regulator’s definition, a security token refers to the digitalization of securities under the Capital Markets Act using Distributed Ledger Technology (DLT). The regulator said per the Capital Markets Act, securities are considered investments when the investor is not required to make an additional top on their initial buyup.

The South Korean regulator also noted that security tokens imply that holders own a stake in the business or project. Riding on this stake, the regulator said the token holders will take a share of the firm’s dividends or profit. As far as the FSC is concerned, tokens that fall under this definition will be regulated under the Capital Markets Act.

The tokens that do not fall in this definition on the other hand will be regulated by a relatively new digital assets regulation that is still under development. The Financial Services Commission (FSC) said the determination of whether a token is a security or not will be done on a case-by-case basis.

This determination, the regulator said will be done by the parties responsible for issuing the tokens. This may range from crypto trading platforms, or the parent company issuing the token.

“Responsibility for reviewing and determining the recognition of securities and complying with securities regulations in the case of token securities lies with the party who intends to issue, distribute, and handle token securities. This is equivalent to determining whether a company is issuing stocks and fulfilling its obligations under the Capital Markets Act, such as disclosure,” the announcement reads.

South Korea and the Stance on Crypto Regulation

The government of South Korea is one that is very open to crypto as an asset class. As one of the vibrant hubs for digital currencies in Asia, the government is very proactive with its regulatory approach in the emerging industry.

While its comprehensive digital assets regulation is still in the works, the country has shown a positive direction such as attracting private partnerships in the development of the nation’s crypto landscape. South Korea is a nation where the clamor for crypto taxation regulation is loud enough, but yet to be fully implemented.

With its zero tolerance for crypto-related frauds, the country pushed out trading platforms that do not have a business association with traditional financial institutions back in 2021. The failure of exchanges like OKEX to meet up forced a quick exit from the South Korean market.

The country recently unveiled its plans to set up an advanced crypto monitoring and tracking system that can help combat crypto fraud.

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