South Korea -- Securities Classification Regulatory Overview

South Korea's Cryptocurrency Token Classification as Securities

South Korea classifies digital assets as securities based on whether they have inherent characteristics that align with the country's Capital Markets Act, with the Financial Services Commission determining classifications on a case-by-case basis[1]. Unlike the United States' Howey test, South Korea does not rely on a single unified legal test but instead applies its existing Capital Markets Act framework directly to digital tokens[1].

Legal Framework and Legislation

The classification system is established through amendments to two key laws that took effect in January 2027[2]:

• Electronic Securities Act (Act on Electronic Registration of Stocks and Debentures): Amended to recognize tokenized securities using blockchain technology for recording issuance and distribution information[5]
• Capital Markets Act (Act on Capital Markets and Financial Investment Business): Amended to allow investment contract securities to circulate through securities companies and other intermediaries[5]

These amendments define tokenized securities as securities that record and manage information on issuance and distribution using distributed ledger technology based on blockchain[5].

Classification Criteria and Token Categories

The FSC's February 2023 guidelines stipulate that digital assets will be regulated as securities if they possess characteristics matching the Capital Markets Act's definition[1]. South Korea applies this framework across multiple asset classes without limitation[2]:

• Debt securities
• Equity securities
• Investment contract securities (including non-standardized products tied to real estate, art, or livestock projects)[3]

The classification is determined on a case-by-case basis by the FSC, with responsibility initially falling on issuers and brokers to conduct their own evaluation and classify their tokens accordingly[1].

Registration and Licensing Requirements

Issuer and intermediary obligations:

• Issuers must notify and apply for registration with the Korea Securities Depository (KSD)[4], which maintains oversight of security tokens beyond just listed securities
• Crypto exchanges and other intermediaries handling security tokens must obtain securities-related licenses; firms without current securities licenses are required to obtain one[1]
• Unlicensed intermediaries cannot engage in security token transactions[4]

The involvement of the KSD represents an unusual regulatory step, as it extends the depository's role to a wide range of security tokens rather than limiting it to listed securities[4].

Secondary Trading Rules

Tokenized securities are classified as investment contract securities tradable through licensed brokerages and intermediaries[2]. The regulatory framework aims to:

• Integrate distributed ledger operational efficiency with established investor protection frameworks[2]
• Enable distributed ledger-based securities account management[3]
• Drive adoption of smart contracts in market infrastructure[2]

Enforcement and Oversight Structure

Implementation is led by the Financial Services Commission in collaboration with[3]:

• Financial Supervisory Service
• Korea Securities Depository
• Financial Investment Association
• Industry participants and experts

The consultation group is establishing supporting infrastructure including distributed ledger-based account management systems and enhanced safeguards[2][3].

Important Limitation

Decentralized Finance (DeFi) platforms, which typically lack intermediaries, have not been mentioned in the legislation, leaving their regulatory status unclear[4]. Additionally, South Korea maintains a ban on domestic Initial Coin Offerings since 2017, though the government is exploring frameworks for regulated token issuance in the future[6].

Note on regulatory guidance URLs: While the search results reference the FSC's February 2023 guidelines and subsequent legislative amendments, specific direct URLs to the complete regulatory guidance documents and legislation text were not provided in the available sources.