South Korea's financial authorities are accelerating the design of regulations for token securities (STO), set to be implemented next year. Discussions have begun on various aspects, including the criteria for underlying assets in fractional investments, the approval system for over-the-counter exchanges, and on-chain payment infrastructure, raising expectations for the early establishment of the STO ecosystem. The authorities reaffirmed their commitment to balancing innovation and trust rather than imposing excessive regulations that hinder progress.
On May 15, the Financial Services Commission (FSC) held the second meeting of the public-private Token Securities Council at the Government Seoul Building, discussing amendments to subordinate regulations and guidelines in preparation for the implementation of the token securities law. The council, which launched in March, includes members from the FSC, the Financial Supervisory Service, the Korea Securities Depository, the Financial Security Institute, the Korea Financial Investment Association, the Fintech Industry Association, as well as experts from academia and the legal field.
The token securities law, established through amendments to the Electronic Securities Act and the Capital Markets Act, is scheduled to take effect in February 2027. The financial authorities aim to minimize market confusion by refining detailed regulations related to issuance, distribution, and payment infrastructure before the law takes effect.
During the meeting, discussions focused on three main areas: criteria for fractional investment issuance, expansion of tokenization infrastructure, and the design of the distribution market structure. The authorities plan to announce the final draft of the related enforcement decree and guidelines by July.
In the fractional investment issuance sector, the eligibility criteria for underlying assets and investor protection systems were key issues. The authorities expressed their intention to allow innovative asset tokenization to expand the token securities market, provided that objective asset valuation, disclosure systems, and risk management measures are firmly established.
Kwon Dae-young, Vice Chairman of the FSC, stated, "Even with innovative tokenization, maintaining market order and protecting investors are fundamental premises of the capital market. Objective asset valuation and risk management systems are necessary."
However, the authorities also indicated plans to relax the rigidity of existing regulations. Currently, the issuance of fractional investment securities that bundle multiple underlying assets is effectively restricted, but there is a consensus to allow pooling within a certain range for assets of the same type in the future.
Discussions on expanding tokenization targets and building infrastructure have also intensified. While domestic STO discussions are currently focused on fractional investments, the global market is rapidly expanding the tokenization of existing structured securities such as stocks, bonds, and money market funds (MMFs).
Kwon emphasized, "Green bonds in Hong Kong and MMFs in the U.S. have been issued in token securities form, and both the New York Stock Exchange (NYSE) and Nasdaq are preparing pilot projects for the tokenization of listed stocks. We must prepare for the imminent future with urgency."
However, the financial authorities drew the line at a complete transition of the existing electronic securities system to a blockchain-based structure all at once. They explained that they would approach this with a phased roadmap and concurrent testing to avoid potential conflicts with the existing system.
Accordingly, the government and relevant agencies plan to examine the feasibility of digitizing the entire process of on-chain payment systems, rights transfer, trading, and settlement while improving related infrastructure. The industry views the integration of central depository systems with distributed ledger technology as a key challenge ahead.
The design of the distribution market structure has also emerged as a core topic of discussion. In particular, the approval system for over-the-counter exchanges capable of multi-party transactions in token securities and the setting of trading limits for general investors were highlighted as major issues.
Currently, there are increasing demands for clarity on whether separate approvals are needed for electronic securities-based OTC exchange operators supporting STO transactions and the extent to which concurrent operations among unlisted stocks, investment contract securities, and fractional investment platforms are permissible.
The financial authorities aim to design regulations that enhance trading efficiency while achieving fair competition and investor protection. Kwon stated, "We will set limits in a way that does not confine innovation while systematizing investor protection and expanding initial market liquidity."
Market participants view this discussion as a significant step toward the implementation of the STO regulatory framework. With proactive efforts to design detailed infrastructure and market structure ahead of the law's enactment, preparations in the securities and fintech sectors are expected to accelerate.
However, industry experts caution that challenges remain. If the criteria for assessing the eligibility of underlying assets become overly stringent, it could stifle innovation, while lenient regulations may increase the risk of investor harm. The stability of blockchain-based transactions and the integration with existing financial infrastructure are also identified as pressing issues.
Kwon remarked, "Token securities are a developing market without clearly established global standards or answers. We must continuously consider the optimal approach that aligns with our capital market environment while closely monitoring new technologies and business attempts."
* This article has been translated by AI.
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