I hope that the law related to token securities (STO) has been created and that this is the last public hearing.
Participants at the seminar held on the 28th at the Korea Exchange in Yeouido, Seoul, titled "Integration of digital finance ecosystem and token securities," expressed this sentiment. The event, hosted by the Digital Finance Hub Committee of the Democratic Party of Korea, saw participation from over 200 people from industry, government, and academia.
Two years ago, after the Financial Services Commission announced measures to reorganize the issuance and distribution system of token securities, amendments to the Electronic Securities Act and the Capital Markets Act were proposed in the 21st National Assembly that year. However, the bills were automatically discarded due to the expiration of the National Assembly's term in May of last year. With the opening of the 22nd National Assembly, amendments to the Electronic Securities Act and the Capital Markets Act were proposed in October of last year.
On that day, Lee Jae-myung, the leader of the Democratic Party of Korea, stated, "If we open the digital asset market and the world's digital assets come to Korea and are traded, corporations will find new opportunities," emphasizing that "the country that seizes digital finance will gain dominance in future finance." Lee's speech was delivered by Lee Han-joo, head of the Democratic Party's Research Institute.
Kim Dae-ik, a partner at PWC Consulting, who delivered the first presentation on the topic of "The impact of STO on economic growth," explained that through STO, "everything that exists in this world can be contained in tokens and traded." STO refers to securities that digitize existing assets based on distributed ledger technology. Kim noted that STO resolves high barriers to investment markets, costs arising from complex transaction stages, and physical constraints, offering advantages over traditional securities.
According to Kim, the global STO market is expected to grow at an average annual rate of 39% by 2030, reaching 2.3 quadrillion won. This is about 10% of the global Gross Domestic Product (GDP). However, in South Korea, as relevant laws have not been established, neither distribution nor issuance is occurring. Kim explained, "Our corporations cannot enter the domestic market and are experiencing cases of issuance abroad."
In neighboring Japan, as of 2020, tokenization has been taking place in traditional financial sectors, starting with stocks, then moving to bond securitization and corporate bond issuance. In the United States, real estate assets were tokenized in 2018, and as of last year, 15 local exchanges handle STO.
Kim emphasized that "by creating an environment for digital asset projects to operate, we can achieve the goal of becoming a 'global financial hub.'" He added, "Our country has a solid industrial base and the capacity to catch up with other countries," advising that institutional support such as simplifying the issuance process is necessary.
Hwang Hyun-il, a lawyer at Sejong Law Firm, who delivered the second presentation, pointed out the shortcomings of the government's proposed STO-related measures. Hwang stated, "When setting the capital requirements for the issuer's account management agency, they should be established in proportion to the issuance volume rather than uniform early standards."
He also noted the need to improve regulations that limit the issuer's role solely to issuance without allowing distribution. Hwang mentioned, "Issuance is broadly divided into three types: the issuer who bears obligations according to securities; the underwriter who takes on unsold quantities; and the broker who connects the issuer and investors."
He advised that "the size of the conflict of interest differs when issuers and underwriters are entrusted with distribution at the same time," explaining that the issuer's participation in the distribution market poses risks of conflict, but that it should be politically allowed for securities companies to offer distribution services for securities they underwrite.
Hwang suggested that it would be desirable to eliminate the annual investment limit for investors. The Financial Services Commission plans to set an annual limit on the amount investors can invest during the institutionalization process of STO, given that it is a new product.
Hwang stated, "The type of bowl does not change the amount of food an investor eats," emphasizing that "the important thing is the food itself." He referenced the Financial Services Commission's analogy of the form of issuance (physical securities, electronic securities, token securities) as bowls and securities (equity securities, debt securities, revenue securities, etc.) as food, to stress the unnecessary nature of the investment limit.
Shin Beom-jun, chairman of the Token Securities Council (representative of BuySellStandard), who participated in the discussion that day, noted that "while listed companies prepare a one-time securities registration statement during listing, fractional investment companies must prepare one every time they issue a product," adding that "the company receiving investment funds is in a situation of depleting those funds while waiting for legislation."
Lee Yong-jun, a Deputy Director at the Financial Services Commission, stated, "The Financial Services Commission is actively working to pass the law," and noted that "the sector, government, and relevant agencies must join forces to ensure that the law concerning STO is passed swiftly."