More Players Join NH Bank-Led Security Token Consortium in South Korea

The Need to Distinguish Between Security and Non-Security Virtual AssetsWith the recent enactment of the Virtual Asset User Protection Bill in South Korea, there is a need to lay out criteria for determining whether virtual assets qualify as securities, says Kim Ja-bong, a senior research fellow at the Korea Institute of Finance, in his report titled “The Implications of Determining Which Virtual Assets Constitute Securities and Investor Protection” released on Saturday.Photo by Shubham Dhage on UnsplashThe implications of the Virtual Asset User Protection ActThe Virtual Asset User Protection Act — which will take effect in July of next year — aims to protect customer assets, establish regulations against unfair trading practices, and enforce penalties. Notably, it will target virtual assets that are not securities, deeming it necessary for regulators to determine if virtual assets qualify as securities or not in order to enforce the bill. Assets with characteristics of securities will fall under the jurisdiction of the Capital Markets Act.Therefore, if the Virtual Asset User Protection Act does not provide sufficient investor protection, issuers may be incentivized to issue non-security assets rather than security assets to avoid the regulations of the Capital Markets Act. This further necessitates the act of distinguishing between virtual assets that are securities versus those that are not.Determining if a virtual asset is a security or notThere are two approaches to do this, according to Kim: the passive approach, which avoids considering a virtual asset as a security whenever possible, and the active approach, which treats a virtual asset as a security whenever applicable.He argues that it is better to focus on whether an investment contract qualifies as a security if it is considered an investment contract, rather than simply selecting a specific approach.Furthermore, the nature of virtual assets renders them unbound by national borders, so it is necessary to establish assessment criteria that correspond with international standards, such as those used in the US and Europe.This is especially important because if the criteria differ from international standards, there is a risk of domestic investors suffering damages due to an issuer’s pursuit of regulatory arbitrage between countries.Equitable recognition and potential for security tokensAccording to Kim, the importance of determining whether virtual assets are securities lies in ensuring that security tokens receive the same recognition and trading treatment as traditional securities such as stocks. With such a measure, security token offerings can serve as an efficient and reliable method for raising funds. Although there may be concerns that such a regulation may hinder the development of virtual assets, it may well be an opportunity for security tokens to be qualified and trusted as high-quality financial instruments just like existing securities, Kim claims.Even for virtual assets that are not considered securities, there are many types of assets that are financial in nature, such as e-money tokens — therefore, it is necessary to actively protect investors in non-security virtual assets through financial regulations such as reinforcing disclosure obligations, which is being done in the EU through the Markets in Crypto-Assets Regulation (MiCA).Empowering regulators for enhanced investor protection and market integrityKim underscored that investor protection and healthy growth of the virtual asset market are made possible mainly through expanding regulators’ authority to protect economic interests and prevent damages. The author also suggested institutional reforms that grant regulators substantial authority, which would enhance their ability to protect investors effectively and provide compensation for damages.He added that regulators should also have the authority to enforce liability for damages or impose civil penalties for unfair trading practices conducted using classified information.

Digital asset insurer funds Middle East expansionOneDegree, a Hong Kong-based InsurTech startup is expanding its area of engagement to the Middle East, funded through an undisclosed investment from Dubai Insurance.Fresh funding round to finance growthThe seven-year-old startup announced on Friday that it has secured further funding, solidifying its commitment to Middle East expansion while building upon the success of OneDegree’s $55 million Series B round in June. Total funds raised are believed to be in the region of $100 million.The Series B round was required to expand its digital assets insurance portfolio. Similarly, the partnership with Dubai Insurance is aimed at facilitating OneDegree’s expansion into the digital asset insurance sector within the United Arab Emirates (UAE) and the Gulf region. The startup firm will now proceed to establish a new entity in Dubai and hire staff locally to take on new business in the region.Among its notable investors are Alibaba Entrepreneurs Fund (AEF) Greater Bay Area Fund, Sun Hung Kai & Co and Cathay Venture, the venture capital arm of Taiwanese billionaire Tsai Hong-tu’s Cathay Financial Holdings. OneDegree’s CEO, Alvin Kwock, has stated that the company is on track to achieve profitability by the second half of 2024.Photo by Roman Logov on UnsplashMinisterial interestIt’s understood that the UAE’s economy minister, Abdulla bin Touq Al Marri, had outlined his interest in OneDegree bringing its service offering to the UAE when he met with representatives from the company at the Belt and Road Summit in Hong Kong in September.Given that OneDegree is planning to service the digital assets sector in the UAE, the move aligns with Dubai’s new crypto regulatory framework implemented earlier this year, which mandates insurance coverage for licensees engaged in crypto-related businesses to safeguard users’ funds. Major players in the crypto industry, such as Binance, Crypto.com and OKX, have already established a presence in Dubai.Only digital asset insurer in AsiaIn a video interview from Dubai on Friday with Forbes, Alvin Kwock emphasized OneDegree’s unique position as the first and only licensed insurer in Asia capable of providing digital asset insurance.Kwock revealed that approximately half of the world’s top 20 crypto exchanges have approached OneDegree for its digital asset insurance, with some of them already being clients. The startup has extended its services to around 30 companies, including Cactus Custody, the custodian unit of Singapore’s Matrixport; Rakkar Digital, backed by Thailand’s Siam Commercial Bank; and Hashkey, one of Hong Kong’s licensed crypto exchanges.In July it penned a deal with blockchain infrastructure firm Blockdaemon. Meanwhile, it has been underwriting digital assets for crypto custodian METACO since November 2022.Anticipating substantial growth, Kwock expects the number of OneDegree’s digital asset insurance customers to surpass 100 by the end of 2024. He foresees this segment constituting about half of the company’s total business in the coming year, up from the current level of 30%. Kwock underscored the evolving dynamics in the crypto market, emphasizing the increasing importance of risk management and the essential role of insurance in the digital asset industry.OneDegree’s expansion into the UAE aligns with the nation’s crypto-friendly policies, actively attracting firms to leverage its supportive regulatory environment. Indirectly, it also serves the Hong Kong government’s strategy to deepen business ties with the Middle East.

Fake Security Tokens Linked to HD Hyundai Oilbank in CirculationHD Hyundai Oilbank, one of South Korea’s leading refiners, said Wednesday that a counterfeit security token dubbed “HOBT” claiming affiliation to the company has been circulating online. The token is allegedly based on old stock certificates under the company’s former name, Hyundai Oil Refinery, as the underlying assets, though the company had changed its name to HD Hyundai Oilbank back in 2002. Both the token and the underlying asset are invalid and have no relation at all to HD Hyundai Oilbank, the company emphasized, so investors must exercise caution.Fraudulent promotionEntities that are giving away or selling HBOT tokens are attracting investors by promoting a one-on-one exchange of the tokens for old Hyundai Oil Refinery stock certificates. They are also promising to grant shareholder rights through blockchain technology as well as interest payments of 4% every month for a total of 24% over six months.Fraudulent activities like these have recently been on the rise following the legalization of security tokens and the formal issuance of a select few tokens.Investigative measuresThe Incheon Metropolitan Police is currently conducting an investigation into the case. Notably, the old Hyundai Oil Refinery stock certificates that the involved entities are claiming to be underlying assets have been proven to be fake in over ten court rulings. Although owners of these old stock certificates had filed lawsuits against the company related to shareholder registration renewals since the late 2000s, all of them had lost their cases.Photo by Tingey Injury Law Firm on UnsplashPast events resurfacingThis recent circulation of the forged HOBT tokens is attributed to employees of a disposal company who pocketed the invalid stock certificates and certificate papers, rather than disposing of them as they were required to do.In January 2002, HD Hyundai Oilbank had hired a company to dispose of documents — including those related to the old stock certificates — that had lost their validity during the process of attracting and increasing foreign capital.“In May of that year, we started receiving frequent inquiries about the stock certificates. We filed a legal complaint against the employees and conspirators of the disposal company for illegally distributing the certificates (including the stock certificate papers), and they were subsequently punished for theft and fraud,” the company explained.