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South Korea to treat crypto tokens and virtual assets as if they were securities

‘Food does not change no matter what bowl it is served in’ says regulator

South Korea’s Financial Services Commission yesterday revealed plans to regulate crypto assets as if they are securities.

An announcement from the Commission’s Capital Market Division argues that investors should expect that tokenised assets enjoy the same protection as conventional securities, because they meet the same definitions South Korea applies to other securities.

The document also notes that there are many types of securities traded in South Korea without the involvement of institutions or exchanges, such as shares in private companies. The regulator therefore does not believe that defining crypto tokens as securities creates a new class of securities.

Or as the machine translation of the document puts it: “The food does not change no matter what container it is served in.”

The Commission extends that metaphor by noting “You cannot use anything as a container for food” and “Suitable bowls may vary depending on the type of food.”

Tokenized assets, the regulator argues, are a new form of container suitable for a new class of security.

The document also suggests that the same blockchain tech powering tokenised assets could be used to create new containers that “improve the issuance and transaction of existing securities more efficiently and conveniently”.

Interestingly, the document appears not to mention the use of blockchain based assets as currency. It does, however, envisage some self-regulation with exchanges asked to decide when tokens they trade are securities and when that treatment is not needed.

The regulator has also pointed out that South Korea’s laws, and the opinions expressed in this document, apply to tokenised assets issued and created overseas.

The regulator intends to submit amendments to relevant South Korean statutes later in 2023, in the hope the nation’s legislature makes them law.

The Commission is very keen for that to happen, as the document makes numerous references to the arguments it makes protecting investors from violations of the law.

The need for such protection is not hard to find in South Korea, as several local crypto outfits have ignored regulations with deeply unpleasant results. And of course the nation is home to Do Kwon, whose Singapore-based Terraform Labs imploded in 2022, making CEO Kwon cryptoland’s biggest villain until the title was snatched away by FTX’s Sam Bankman-Fried. ®

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