FSC Launches Private-public Joint Consultative Body on Security Token and Holds Kick-off Meeting

The Financial Services Commission launched a private-public joint consultative body on security token and held a kick-off meeting on March 4. The amended legislation on security token (revisions to the Act on Electronic Registration of Stocks and Bonds and the Financial Investment Services and Capital Markets Act), which was approved by the National Assembly in January this year, is scheduled to take effect from February 4, 2027, after making updates to subordinate statutes and setting up relevant infrastructures. In this regard, the joint consultative body on security token will play a crucial role in designing an overall framework of rules and infrastructures on security token.

A Summary of Remarks by FSC Chairman

When considering the development of blockchain technology, security tokens should not be taken as a one-off trend but a significant pillar reinforcing the structural convergence of capital markets. In this regard, three key policy directions on security token are proposed.

First, there should be an innovative digital finance ecosystem equipped with both diversity and scalability. With the emergence of non-traditional types of securities, which allow investors to invest in particular types of underlying assets and/or projects based on individual interests, such as music, art, livestock, and real estate, capital market's horizon has been expanded. With the use of blockchain-based smart contracts, security tokens are expected to more efficiently serve the demand of various types of atypical securities rights tailored for different individual needs. To facilitate the introduction of diverse and innovative types of security tokens, the joint consultative body will work on establishing relevant rules on the issuance, circulation, and disclosure of security tokens.

Second, there should be an investor protection framework tailored to the specific characteristics of blockchain technology. Security tokens are by their intrinsic quality securities, and investor protection is a key principle of capital market regulations. Under the FSCMA, investor protection measures are duly prescribed in rules concerning the licensing of financial investment business, disclosure, unfair trading activities, and the operation of exchanges and over-the-counter markets. In this regard, there needs to be a reassessment of current investor protection mechanisms and an upgrade if necessary to make sure that they can also work for security tokens. The joint consultative body will work on ways to refine the investor protection measures to make them properly fit for a security token environment.

Third, there should be preparations for future securities payments system, such as on-chain payments. In overseas markets, there are attempts to support 24-hour and T+0 settlements of securities using stablecoins as a payment method for security tokens. In this regard, on-chain payments will boost the efficiency in security token transactions as the payment and settlement transactions will both take place on a blockchain. The joint consultative body will work on formulating relevant rules and infrastructures on security token while keeping in mind the connectivity and future scalability in relation to the introduction of a framework law on digital assets (which will include stablecoins).

Operation of Joint Consultative Body

The joint consultative body on security token will be operated on an ongoing basis with four subdivisions-(a) technology and infrastructure, (b) issuance, (c) circulation, and (d) payment and settlement. To facilitate the gathering of more wide-ranging opinions, an open pool of private sector experts and advisors will also be operated. The joint consultative body will have intense discussions in the first half of this year to set the direction for security token related rules and have frequent meetings before the law takes effect (from Feb. 4, 2027) to go over and sort out relevant issues.

* Please refer to the attached PDF for details.