On Monday, February 6, the Financial Services Commission (FSC), a top regulator in charge of regulating financial markets in South Korea, broadened the definition of what kind of crypto tokens are regarded as a security. In other words, the watchdog created a regulation that aims to specify which types of cryptocurrencies will be regarded and regulated as financial securities in the nation.

As per the report, the FSC stated that cryptocurrencies that fit the characteristics associated with securities, as highlighted in the nation’s Capital Markets Act, will be treated and regulated as financial securities such as stocks (shares), bonds, options, etc.

According to the press release, crypto tokens that have characteristics of securities involve digital assets that offer profit to the investors, give holders rights to dividends, or provide a stake in business operations.

The regulator said virtual asset service providers (VASPs) like cryptocurrency exchanges, among others, will be responsible for evaluating which cryptocurrencies are classified as security tokens based on the regulations under the country’s Capital Markets Law. The watchdog further said firms that fail to comply with the regulations concerning the issuance of securities would be violating the rule of law and committing a criminal offence.

Under the Capital Markets Act, security tokens are financial instruments that represent an ownership interest in an asset, digitized by the power of distributed ledger technology (Blockchain) and will apply to cryptocurrencies that qualify as such.

The regulator said cryptocurrencies showing similar characteristics to security tokens must be issued and distributed in accordance with securities regulations as enshrined in the Capital Markets Act.

The FSC said the new regulations are intended to support innovation while ensuring consumer protection. According to the financial watchdog, the new rules are part of preparations for the legalization, issuance, and distribution of security tokens within the nation.

Gearing up to create a safe space for crypto

South Korea has long been considered a major crypto hub in Asia. It is the home of crypto exchange giants such as BitHumb, CoinOne, Korbit, Upbit, and Gopax. Almost 30% of all crypto trading worldwide is contributed by the South Korean market. Currently while the South Korean government legalizes users to own, sell, and buy cryptocurrencies in the nation, such digital assets are not legal tenders.

Crypto assets, exchanges, and VASPs are governed by a strict regulatory framework, including government registration and other regulations oversight by the Financial Supervisory Service of South Korea (FSS).

A week ago, the Ministry of Justice (South Korea) unveiled plans to introduce a crypto-tracking system that will be utilized to monitor transaction history, counter money laundering initiatives, and recover funds associated with criminal activities.

Nicholas Otieno

CBW - External Analyst

KENYA