South Korea Passes Tokenized Securities Act to Formalize Blockchain-Based Security Token Offerings

South Korea’s National Assembly has passed the Tokenized Securities Act, allowing compliant issuers to directly issue tokenized securities using blockchain. The move formalizes Security Token Offerings (STOs) within the country’s capital market framework. This legislative step builds on amendments to the Capital Markets Act and the Act on the Electronic Registration of Stocks and Bonds.

The new law introduces an issuer custody account system, which allows qualified entities to issue security tokens directly on the blockchain. This system aims to enhance the security and utility of securities by leveraging distributed ledger technology. The revisions also lay a legal foundation for the issuance and circulation of digital securities.

By integrating blockchain into the financial regulatory framework, South Korea is positioning itself as a global leader in digital asset innovation. The move aligns with global trends in tokenization and may attract new investment into the local capital markets.

Why the Move Happened

The passage of the Tokenized Securities Act follows a growing global interest in blockchain-based financial instruments. South Korea has been cautious in its approach to digital assets but is now seeking to formalize and regulate emerging technologies. The legislation is expected to attract institutional investors and reduce intermediation costs in the capital markets.

Regulators have long expressed concerns about the risks associated with unregulated digital assets. By formalizing STOs within existing legal frameworks, the government aims to reduce risks while promoting innovation. The new law is also seen as a step toward aligning with international financial standards.

How the Law Will Work

The Tokenized Securities Act introduces a mechanism where qualified issuers can tokenize their securities on the blockchain. The process is facilitated through the issuer custody account system, which ensures that tokens are issued in compliance with existing regulations. The system also allows for greater transparency and traceability of transactions.

This new system is expected to streamline the issuance process, reduce settlement times, and increase the efficiency of capital markets. It also provides a legal basis for new types of digital securities, such as tokenized bonds and equity shares. The government is likely to issue additional guidelines to clarify implementation details.

What Analysts Are Watching

Analysts are closely monitoring how the new law will affect the broader capital market ecosystem. Some are concerned about the potential for regulatory fragmentation if other countries adopt different approaches to tokenization. Others are watching for signs of increased investor interest in tokenized assets.

Market participants are also looking for updates on how the Financial Services Commission (FSC) will regulate digital securities. The FSC is expected to issue additional rules to govern the custody, trading, and settlement of tokenized assets. These rules will shape the future of digital finance in South Korea.

Investors are also paying attention to how tokenized securities will interact with existing financial instruments. The success of this new market will depend on whether institutional investors adopt these instruments at scale. The FSC has indicated it will work closely with market participants to ensure a smooth transition to the new framework.