Korea Makes Strides in Establishing the Legal Framework for Security Tokens

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.

JPEX Exchange Scandal Sees Crypto Regulation Under Scrutiny in Hong KongWhile Hong Kong has been developing steadily as a crypto sector hub, the focus in the Chinese autonomous territory has turned towards regulation after a recent scandal involving an unlicensed cryptocurrency exchange.Photo by Ihor Saveliev on UnsplashOngoing investigationYesterday we reported on some arrests relative to problems experienced at crypto exchange JPEX. The fallout continues on Tuesday, with the Hong Kong police now understood to have arrested eight individuals, including social media influencers who promoted the exchange and JPEX employees, on allegations of fraud. This illicit activity in and around the JPEX exchange has affected over 1,600 investors, implicating more than $150 million in assets.JPEX, in response to mounting pressure, announced the suspension of trading on its platform. In a statement, the exchange mentioned ongoing negotiations with third-party market makers to address liquidity shortages. However, JPEX also accused an unidentified third-party market maker of maliciously freezing funds, further complicating the situation.Politicians and regulators speak outResponding to the incident via a press conference on Tuesday, Hong Kong’s Chief Executive, John Lee, emphasized the significance of investing in virtual assets through licensed platforms. Lee stated:“This incident highlights the importance that when investors want to invest in virtual assets, then they must invest on platforms that are licensed.” He also pledged that the Securities and Futures Commission (SFC) would closely monitor the situation to ensure investor protection.Elizabeth Wong, the Head of the SFC’s fintech unit, revealed that an investigation was underway to determine whether JPEX had violated anti-money laundering laws. The SFC had already declared JPEX unlicensed, prompting numerous complaints from investors who were unable to withdraw their virtual assets or experienced unexplained reductions in their balances.Assets frozenHong Kong authorities have taken decisive action against those involved in the scandal. They have frozen bank accounts valued at 15 million Hong Kong dollars ($1 million) and seized three properties valued at 44 million Hong Kong dollars. The police have reported receiving 1,641 complaints related to JPEX, involving a staggering $1.2 billion Hong Kong dollars. By last Wednesday, the SFC had received in excess of 1,000 complaints and at that point, they notified the general public.The JPEX scandal has drawn attention to the need for stronger cryptocurrency regulations in Hong Kong, a region that has become attractive to cryptocurrency firms since mainland China banned cryptocurrency transactions in 2021. In mainland China, trading cryptocurrencies on foreign exchanges from within the country remains illegal.Hong Kong’s response to cryptocurrency regulation has evolved. Beginning on June 1, the SFC started accepting applications from cryptocurrency exchanges, allowing licensed operators to serve retail investors, provided they understand the associated risks. Previously, only professional investors had access to such exchanges. Currently, only two exchanges in Hong Kong, OSL Exchange and Hashkey Exchange, have received approval to operate.As Hong Kong reevaluates its approach to cryptocurrency regulation, the crypto sector will hope that it strikes a balance between fostering innovation and protecting investors from fraud and market manipulation.

Superblock Rolls Out Crypto Wallet, Garnering Over 680K Pre-RegistrantsSouth Korean blockchain startup Superblock has successfully rolled out its own cryptocurrency wallet, named Over Wallet, according to a report by local news outlet Newsis. The wallet has already amassed over 680,000 pre-registrants since April, ahead of its official release.Photo by Shubham’s Web3 on UnsplashAccessibility and cost reductionOver Wallet serves as the mobile crypto wallet for the Over Protocol, a blockchain mainnet developed based on the paper published by Superblock’s CEO, Kim Jae-yun. The Over Protocol distinguishes itself through its accessibility, offering enterprises interested in the Web3 industry an opportunity to reduce costs associated with infrastructure investment and service operation.With the introduction of Over Wallet, Superblock empowers users with the capability to collect and manage Over points. The company plans to add functions for the management and transfer of token assets to provide an even more optimized user experience.Currently, Over Wallet is available for download on the Apple App Store and Google Play Store.Mainnet launch next yearAs part of the preparations leading up to the Over Protocol’s mainnet launch in the first half of next year, the Over Community Access Program (OCAP) has also been unveiled. OCAP enables users to earn Over points by completing various tasks. These accumulated points can then be used at the Over Protocol pop-up store, a side event scheduled for the annual blockchain conference, Korea Blockchain Week 2023, taking place in Seoul in September. The event will collaborate with KREAM, a resale and trading platform catering to collectors of limited editions.Superblock CEO Kim has a notable background, having founded Decipher, a blockchain study group at Seoul National University, in 2018. During the establishment of Superblock, Kim successfully secured funding from investors Spring Camp and Naver Z, both affiliates of the Korean search engine giant Naver.There has been additional support that underpins Superblock’s commitment to blockchain ventures. Last October, the company partnered with Shinhan Securities for technological cooperation. Subsequently, in February of this year, Superblock raised a Series A funding round of 9 billion KRW ($7 million). Investors in this round include notable names like conglomerate SK Inc., game developer Netmarble, and venture capital firm DSC Investment.