Legislative Milestone for Tokenized Securities

South Korea's National Assembly has successfully passed amendments to the Capital Markets Act and the Electronic Securities Act. These amendments, approved during Thursday's plenary session, lay the crucial legal groundwork for the issuance and distribution of security token offerings. The new legislation effectively institutionalizes the use of distributed ledger technology for tokenized securities.

Operationalizing Tokenized Securities

Under the revised Electronic Securities Act, qualified issuers will gain the ability to launch tokenized securities. Concurrently, the amendments to the Capital Markets Act will permit these products to be traded on brokerages and other intermediaries as investment contract securities. The Financial Services Commission has highlighted that token securities will facilitate distributed ledger-based securities account management and enable greater utilization of smart contracts. The government anticipates a more active deployment of smart contracts within blockchain-based securities infrastructure.

Scope and Impact of Token Securities

Token securities are defined as a broad category encompassing all types of securities, including both debt and equity instruments. This legislative update is expected to significantly benefit non-standardized investment contract securities that are linked to projects such as real estate, art, or livestock. Previously, the distribution of these types of securities faced considerable limitations.

Path to Implementation and Timeline

Following their passage in the National Assembly, the bills will proceed to the state council for review and then be officially promulgated by the president. The legislation is highly likely to be enacted. The laws are scheduled to take effect in January 2027, allowing for a one-year preparation period. This development follows years of foundational work, with the Financial Services Commission having first issued related guidelines in 2023.

Developing Supporting Infrastructure and Safeguards

The Financial Services Commission will spearhead the implementation process. To this end, a consultation body will be formed, comprising the Financial Supervisory Service, Korea Securities Depository, Financial Investment Association, industry participants, and various experts. The objective of this body will be to develop essential supporting infrastructure, including advanced distributed ledger-based account management systems and enhanced safeguards. A kick-off meeting for this initiative is slated for next month.

Market Projections for Tokenized Assets

Market analysis indicates substantial growth potential for tokenized assets. In October of the previous year, Standard Chartered projected that the market capitalization for tokenized real-world assets, excluding stablecoins, could surge to $2 trillion by 2028, a significant increase from the $35 billion reported at the time of their report. Further forecasts from the Boston Consulting Group, as reported by Hankyung, suggest that the South Korean token securities market could reach approximately 367 trillion won (equivalent to $249 billion) by the end of this decade.

Industry Readiness and Future Regulations

Major South Korean financial institutions, including Mirae Asset Securities and Hana Financial Group, have already begun to advance their related platforms and forge collaborations in anticipation of these regulatory changes. In parallel, South Korea is actively preparing the Digital Asset Basic Act, which is set to be the nation's second comprehensive regulatory framework. This forthcoming act is expected to formalize rules for ongoing digital asset initiatives, such as won-pegged stablecoins and the country's inaugural spot cryptocurrency exchange-traded funds.

Consolidating South Korea's Digital Asset Position

The final version of the Digital Asset Basic Act is anticipated to be released in the first quarter of the current year. This regulatory advancement is poised to further solidify South Korea's position as a leader in the evolving landscape of tokenized securities and digital asset regulation.