The Financial Services Commission (the “FSC”) in February of 2023 announced a plan to overhaul the Security Token legal regime in Korea. Security tokens are digital representations of an asset traded and held on a blockchain.
The announcement, seems to be in reaction to the Terra/Luna Meltdown and related meltdowns and belief that the the population needs more protections. We suspect to see the delisting of some Korean security tokens in Korea and a comprehensive and difficult process to listing.
The main component of the law is the Definition of a “Security Token” and placing the regulation of security tokens under the Korean Financial Investment Services and Capital Markets Act . The regulations shall make it near impossible, based on the present structure of many coins for them to be listed in the Korean market.
Definition of a Security Token in Korea
The Amendment’s main point is to provide a definition of a security token and a path to registration or delisting. The Amendment, in short, shall:
- Define security tokens as electronic securities under the Electronic Securities Act.
- Authorize the registration of security tokens under the Electronic Securities Act.
- Develop a licensing scheme for brokers; and
- Increase requirements for small public offerings.
In Korea, to be approved as a security token: (1) efforts made by the issuer of a digital assets must be indispensably significant to determine the success or failure of the business; and (2) there must be a promise to distribute profits from the performance of the business.
The Korean FSC lists a number of situations that are considered situations that are more likely for approval as a security token:
- The investor in the token has any equity interest in the operation and the business or shall receive dividend based on the performance of the business or shall receive residual asset distributions.
- The issuer of the token distributes profits to the investor.
- The payment made to an investor has the actual effect of distributing profits.
We shall have more updates on this matter when more information becomes available. IPG Legal assisted numerous clients on Blockchain legal and business development issues.
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