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Korean Financial Authorities to Provide Support for Security Token MarketAmid growing calls for accelerating the growth of the emerging security token (ST) market, the South Korean government is preparing to introduce supportive measures. The security token market is powered by blockchain technology which allows fractional investment in real world assets (RWAs) such as real estate and artwork.Security tokens are digital assets that represent securities generated through a process called security token offering (STO). These tokens, backed by RWAs, can be traded similarly to traditional securities. Investors can use these tokens to obtain shares, voting rights, interest, or profits.Photo by Philip Jang on UnsplashSupport measures for security token IndustryNext month, the Financial Services Commission (FSC) will draw up support measures and policy improvement plans to bolster the nascent security token industry. An FSC representative mentioned that the agency intends to work with the National Assembly to finalize the legislation of security token-related bills by November. Furthermore, the government official said the FSC will actively seek input from industry stakeholders to formulate strategies for enhancing policies designed to promote the growth of the security token market.To align with the national objective titled “The Establishment of Digital Asset Infrastructure and Regulatory Framework,” the FSC revealed regulatory guidelines for security token issuance and distribution in February. These new guidelines are centered around the establishment of institutions responsible for account management and entities engaged in over-the-counter (OTC) trading. Subsequently, in July, lawmaker Yun Chang-hyun, a member of the National Assembly’s National Policy Committee, proposed a bill to amend the Electronic Securities Act and the Capital Markets Act with the aim of ensuring that these Acts are consistent with the new regulatory guidelines.Security token market’s growth potentialWith growing anticipation that the security token market could rival the size of the exchange-traded fund (ETF) stock market, securities firms, banks, and blockchain companies have been eager to carve out a niche for themselves since the start of the year. However, their progress has been hindered by a potentially extended period of higher interest rates in the US and the slow advancement of security token-related legislation. While these organizations tried to explore opportunities through the financial regulatory sandbox, their endeavors proved more or less fruitless. An official from a securities firm voiced concerns over the escalating costs of setting up security token infrastructure, especially with legislative delays.On this matter, the Korea Financial Investment Association (KOFIA) has emphasized the urgent need to pass security token legislation to clear up regulatory ambiguities. They’ve also called for measures to stimulate market growth, such as relaxing regulations related to token issuance and distribution and increasing investment caps.At a seminar hosted by the Korea Capital Market Institute, Ahn Hyuk, Head of the Platform Division at Korea Investment and Securities, highlighted that the rigorous review of security registration applications by the Financial Supervisory Service (FSS) might impede the security token market’s growth. Responding to this, Jang Young-shim, Head of the Corporate Disclosure Department at FSS, said that both the FSC and FSS will carefully listen to industry feedback, addressing a range of topics from regulatory relaxation to investor protection.

Hong Kong unveils comprehensive tokenization regulationsChristopher Hui, Hong Kong’s Secretary for Financial Services and the Treasury, shared a roadmap for upcoming regulations within the tokenization sector during his address at the Hong Kong Fintech Week 2023.Photo by Simon Zhu on UnsplashJPEX no hindrance to Web3 growthHui’s announcement at the event on Thursday comes on the heels of the JPEX scandal, a Dubai-based crypto exchange that collapsed amid allegations of having defrauded Hong Kong-based platform users. Hui emphatically stated that the JPEX incident would not deter Hong Kong’s commitment to expanding the Web3 market. Hui stated:“We’ve been asked many times whether JPEX will affect our determination to grow the Web3 market — the answer is a clear ‘no.’”In June, Hong Kong implemented new regulations for cryptocurrency exchanges, opening up locally regulated crypto trading services to retail customers via virtual asset service providers (VASPs). However, the majority of the forthcoming regulatory efforts will extend beyond the crypto sector, focusing on areas such as token issuance, wallets and other related components.Regulatory impact on TradFi and DeFiHui indicated the intention to expand virtual asset regulations, suggesting a potential impact on decentralized finance (DeFi). The planned regulations within the tokenization domain are poised to influence not only the crypto industry but also traditional finance (TradFi).These regulations include the issuance of a circular concerning intermediaries engaging in tokenized securities. Additionally, they entail a circular regarding the tokenization of Securities and Futures Commission (SFC)-authorized investment products. Lastly, they’re inclusive of consultations with banks on digital asset custody services with the involvement of the banking regulator. Furthermore, a joint consultation on stablecoin regulations will be issued by the Treasury and the Hong Kong Monetary Authority (HKMA).Focus on positive impact of tokenizationEddie Yue, CEO of the HKMA, echoed Hui’s sentiments by discussing the positive impact of tokenization. He anticipates that tokenization will fuel the adoption of blockchain payments, particularly involving stablecoins and tokenized deposits. Yue believes that central bank digital currencies (CBDCs) will serve as the foundation and a crucial element for achieving interoperability within this ecosystem.He emphasized the need to tackle crucial questions, such as the legal definitions of tokenized securities and whether Delivery versus Payment (DvP) can be successfully implemented for tokenized securities. Additionally, Yue pointed out the intricate legal considerations and interoperability challenges that are currently being discussed within the central bank community.First tokenized green bond issuanceYue also highlighted Hong Kong’s first-of-its-kind issuance of tokenized green bonds in February and revealed that discussions with the industry are already underway for the next bond.“We, ourselves, assisted the government to issue the world’s first-ever tokenized government green bond earlier this year in order to demonstrate the compatibility of Hong Kong’s legal and regulatory environment with this very new issuance format,” he stated. However, despite the promising outlook, Yue remained grounded on the subject, acknowledging the significant challenges in the tokenization landscape.In a related development, HSBC recently disclosed that it is conducting experiments with tokenized deposits in collaboration with Ant Group as part of the HKMA sandbox.

Academia, Industry Collaborate on Crypto Accounting Research in KoreaThe Korean Accounting Association (KAA) and Samil PwC, the South Korean member firm of global accounting company PwC, have joined forces to conduct collaborative research on accounting for cryptocurrency assets, according to a report by local news outlet Maeil Business Newspaper.Photo by Pixabay on PexelsCollaborative effortsUnder this newly formed partnership, the KAA’s crypto asset committee will work closely with Samil PwC to explore a wide range of crypto assets, facilitate the development of financial statements pertaining to these assets for businesses, and implement accounting policies that align with the characteristics of cryptocurrencies.Leading the crypto asset committee is Roh Hee-chun from Soongsil University, while Partner Lee Jae-hyeok from Samil PwC will participate in the study. Until 2028, this collaboration is poised to yield insights and findings on crypto asset accounting.First seminarThe committee is set to hold its first seminar on June 27, serving as a platform for knowledge exchange and fostering deeper understanding among industry professionals. Furthermore, the accountants involved anticipate publishing a paper in an academic journal next year.PwC’s Assurance Leader Oh Kee-won emphasized the accounting firm’s commitment to leveraging its extensive resources in order to produce outcomes that positively impact society.Meanwhile, KAA President-elect Kim Gap-soon highlighted the relative novelty of crypto asset accounting, acknowledging that there is much ground to be covered. The association aims to establish a solid foundation that offers optimal guidance in the field of crypto asset accounting.