The Financial Services Commission announced this month a plan to institutionalize fractional investment; however, securities firms have begun to scale back their token securities issuance (STO) related departments. Blockchain-based STOs can only be issued once the draft amendment to the Electronic Securities Act passes the National Assembly, but the legislative process is expected to take a considerable amount of time.
According to the financial investment industry on the 16th, some securities firms have begun to reduce their STO business departments. As signs emerged that the passage of related legislation would be prolonged, they decided to cut back on maintenance expenses such as personnel and infrastructure. KB Securities has moved its STO business department under its digital-related operations, allowing its employees to take on other tasks as well. Samsung Securities has reportedly also reduced its task force related to STOs to a team organization.
Securities firms rushed to prepare by building related systems after the Financial Services Commission permitted the issuance and distribution of STOs through guidelines last year. However, it appears that significant time will be needed for the related market to become active, contrary to the initial expectations.
A securities industry official said, “As the legislation has been delayed, STO corporations are just scraping by,” and added, “While the financial authorities have stated their intention to institutionalize, there is also a persistent anxiety that the legislative process could be postponed at any time.”
The Financial Services Commission announced on the 3rd of this month a legislative notice for a revision of the Enforcement Decree of the Capital Markets Act aimed at institutionalizing innovative financial services for fractional investment (sandbox). It is set to take effect on June 16.
Under current law, fractional investment products can only be issued based on investment contract securities. Non-monetary trust revenue securities could only be issued by sandbox-designated companies. The financial authorities plan to establish a new licensing unit for investment brokerage businesses that will allow the issuance of fractional investment products based on non-monetary trust revenue securities. Temporarily, the Asset-Backed Securitization Act will be used as the legal basis, and if the currently pending amendment to the Capital Markets Act passes the National Assembly, it is expected that the issuance of non-monetary trust revenue securities will generally be possible. Companies such as Casa, LucentBlock, Funble, and Musicow will be covered by this revision of the enforcement decree.
The financial authorities also plan to institutionalize a new licensing unit for the distribution platform of revenue securities by the end of September this year. If a variety of fractional investment products are handled after institutionalization, it is expected that accessibility for general investors will also improve.
However, STOs based on blockchain technology require the prior amendment of the Electronic Securities Act in the National Assembly. This was not included in the institutionalization plan announced by the Financial Services Commission. Currently, STO corporations are facing difficulties with new investments, the only means of raising capital, as the legislative process is delayed. In one case, an STO firm did not secure additional funding, leading to many employees who had not received their wages recently leaving the company.
A source from the venture capital (VC) industry stated, “We reviewed STO corporations several times until last year, but due to various debates related to legislation, we are no longer seeing them as investment targets.”
Some STO corporations that found it difficult to operate in the country are turning their eyes abroad. Bysellstandard, which operates the STO-based digital asset management platform 'PICE', will enter the Japanese and Singaporean markets this year. They have completed the concept for a token product that bundles luxury items like luxury watches with K-pop, webtoons, and content, and are coordinating the launch schedule with local token securities exchanges. The goal is to launch products in Japan in the second half of the year. Funble, which operates a token securities platform based on physical assets, also signed a business agreement with EuroSX, a token trading platform in France last month, and is set to target the European market.
There are expectations that the financial authorities are actively pursuing the institutionalization of fractional investment, and as early as the first half of this year, the 'STO Institutionalization Package Bill' (amendments to the Capital Markets Act and Electronic Securities Act) could pass the National Assembly's Legislative Review Committee. The proposed amendments were led by National Assembly members Kim Jae-seop of the People Power Party and Min Byeong-deok of the Democratic Party last November.