By Michael Scott
The South Korean financial services regulator offered clarity to the securities and crypto firms in a guideline published on February 13. The country’s Financial Services Commission (FSC) presented a detailed guideline to help issuers, brokers, and crypto firms on whether the token issued satisfies the security definition.
The FSC’s new guideline considers security tokens digitized using distributed ledger technology. The definition aims at harmonizing the treatment of security tokens similar to other Asian jurisdictions.
New Guidance for Self-regulation for Crypto Firms
The new guidance challenges crypto firms to embrace self-regulation. The approach in the guideline issued on Monday, February 13, portrays the broader scope adopted in Asian countries. Angela Ang, the senior adviser at the TRM labs, indicated that the scope aligns with the definition adopted by Singapore and Hong Kong regulators.
From experience at Singapore’s Monetary Authority, Angela lauded the harmonized treatment of security tokens. The blockchain-based intelligence firm’s official considers regulatory clarity critical to stimulate widespread digital asset innovation in the country’s capital markets.
Angela lamented the delay in publishing the guidance made the conventional securities firms reluctant to enter the token segment.
Eliminating the How Question for Token Securities
Previously, the fundamental stance adopted in South Korea mirrored the securities approach applied to tokens in the US. Nevertheless, a Foreign partner at the Kim & Chang law firm Mooni Kim regretted that such an application always triggered the how question.
The issuance of new guidelines stimulates activity among traditional finance players, particularly among holders of securities licenses. Shinhan Investment and Securities challenged other companies to an alliance that will tap the benefits of token securities.
As a lead company in the South Korean market, Shinhan invited rival companies to formulate standards and best practices to guide its issuance.
Securities Firms Optimistic About Regulatory Clarity
An anonymous executive working with a lead crypto exchange appreciated the regulatory clarity as yielding optimism for securities firms. Nonetheless, the executive dismissed speculations that guidance would spark increased business activity.
The executive dismissed the new guidance as signifying the regulator’s devotion to encouraging investment in the crypto industry. The executive pointed out that investors can access various securities in the Korean capital market. Instead, FSC should prioritize accurate definitions of various digital assets.
The executive supported the need for the crypto community to wait for the court ruling on US Securities and Exchange Commission charges lodged against Ripple. As such, the crypto exchange official warned South Korea against rushing to regulate ahead of its developed peers.
The anonymous crypto executive praised the new guidance as it obliged the Korea Securities Depository to control the units of issued digital assets and oversee the issuers.
Clarifying the Securities Depository’s role is fundamental given the incident where gaming firm Wemade dishonesty on Wemix tokens was issued. The situation led to the delisting of Wemix by leading crypto exchanges.
Prioritizing Self-Assessment in Crypto Firms
The guidance published by FSC challenges the legislators to reshape the existing laws by including coverage of security tokens. The new arrangement mandates regulators to amend the Capital Markets Act alongside the Electronic Securities Act.
The proposed amendments are scheduled for introduction in the National Assembly by mid-2023. Its origin traces to the collapse of Terra’s UST stablecoin in 2022. The implosion of UST inspired regulators to formulate stricter protections that safeguard consumers’ funds. The drafting of the new regulatory framework is set to facilitate the crypto industry oversight take share under the Digital Asset Basic Act.
The proposed bill is facilitative for crypto firms to embrace self-regulation. The new guidance tasks crypto players to reconsider their classification while assessing the tokens issued. By doing so, crypto firms would voluntarily subject their operations to the securities regime.
Guidance Compels Restructuring Business Operations
The new guidance is set to compel the crypto firms’ operations restructuring. In particular, the guidance challenges the firms without securities-related licenses to initiate the process estimated to consume 12 to 24 months. However, the process length will vary relative to the business model and licenses sought by the crypto firm.
Angela anticipates the readjustment to hurt several crypto businesses when courting regulators’ agreement on satisfying security classification. The financial advisor considers that FSC would assume a critical role in assessing the crypto firm’s situation on a case-by-case basis.