South Korea issues guidance on security tokens, STOs

South Korea’s Financial Services Commission (FSC) issued guidance on the regulation of security tokens and their issuance on Feb. 6. According to the regulator, digital assets that fit the characteristics of securities as defined in the Capital Markets Act, will be regulated as securities in the country.

As per the FSC, cryptocurrencies that offer a stake in business operations, and give holders rights to dividends, residual assets, or business profits, will fall under the category of securities under the Capital Markets Act.

The securities regulations entail public disclosure requirements and prohibit unfair trade practices to protect the rights of investors.

Cryptocurrencies that do not fall into the category of securities, however, will be regulated by the upcoming Framework Act on Digital Assets, the FSC said. Digital assets that do not have an issuer, like Bitcoin (BTC) and Ethereum (ETH), will not be considered securities, the FSC said.

The FSC will also permit Security Token Offerings (STOs) by making amendments to its Electronic Securities Act.

However, the FSC stated that token issuers and brokers, like crypto exchanges, will be required to assess which cryptocurrencies are securities on a case-by-case basis. This is similar to how companies have to self-determine whether they are issuing securities and follow the applicable regulations.

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