Financial Supervisory Service Chief: "We Will Strive to Avoid Trial and Error in Token Securities Issuance"

[Asia Economy Reporter Lee Jung-yoon] The Financial Supervisory Service (FSS) will hold briefings in accordance with the Financial Services Commission's guidelines on the institutionalization of Security Tokens and will also conduct evaluations of virtual asset exchanges.

At a press briefing on the 2023 FSS work plan held on the 6th, FSS Governor Lee Bok-hyun stated, "The contents related to the Security Token guidelines have been announced mainly by the Financial Services Commission, and we expect to receive inquiries from various stakeholders including the securities industry," adding, "We plan to hold a briefing session at the FSS as the first step within this month."

The FSS plans to conduct evaluations of exchanges in the first half of this year. Governor Lee said, "There are some legal amendments needed, so we plan to proceed focusing on exchanges through mirroring," and added, "The FSS will also make efforts centered on the Financial Services Commission to minimize trial and error." He also said, "If there are differing views on Security Tokens based on individual judgments, the process will proceed according to the various procedures established under the Capital Markets Act," and expressed hope that "issues related to virtual assets, which have brought many challenges, will be coordinated and standards established within the year, making it a year of new growth."

Earlier, the Financial Services Commission announced that it would allow the issuance and distribution of Security Tokens within the Capital Markets Act (STO, Security Token Offering) and promote the establishment of a related regulatory framework. Security Tokens refer to securities digitized under the Capital Markets Act using distributed ledger technology. This represents a new form of securities issuance following physical securities and electronic securities. Digital assets that do not fall under securities, such as Bitcoin, are not subject to the Capital Markets Act or the Electronic Securities Act and will be regulated separately through legislation by the National Assembly, according to the government's basic policy. Currently, if virtual assets traded on domestic virtual asset exchanges are found to be securities, issuers will be subject to sanctions for violating the Capital Markets Act.

Additionally, through the work plan announced on the same day, the FSS stated that it will prepare regulations and forms to enable the issuance and distribution of new types of securities such as Security Tokens and fractional investments in accordance with related guidelines. It will also promote the phased expansion of English disclosures to reduce information asymmetry for foreign investors.

At the briefing, Governor Lee also expressed a positive view on the various roles of activist funds. He explained, "As the capital market has grown quantitatively and qualitatively in recent years, it is positive that activist funds are playing various roles in different forms," and added, "They are exercising various powers under the Commercial Act and the Corporate Governance Act, so their functions are respected."

He continued, "However, in the case of banks, it is necessary to consider that they must perform various roles such as providing credit to low- and medium-credit borrowers, not just pursuing profit," and said, "Given the difficult real economy situation at the end of last year and this year, it is necessary to consider the interests of various stakeholders along with maximizing shareholder value."

Furthermore, this year the FSS plans to improve capital market infrastructure and create a trustworthy investment environment. According to the work plan, the FSS will promptly conduct licensing reviews for Alternative Trading Systems (ATS) and organize related supervisory systems, while promoting improvements to foreign investment systems such as abolishing the foreign investor registration system and easing restrictions on over-the-counter trading. It will also revise domestic disclosure standards in line with the establishment of global sustainability disclosure standards and prepare improvement plans for the disclosure of ESG (Environmental, Social, Governance) fund performance and guidelines for ESG bond certification evaluations.

Moreover, the FSS will build and operate a reporting system for securities lending transactions aimed at short selling and inspect securities firms' short selling processes. To enhance the reliability of research reports, it will also promote the introduction of independent research firms. The FSS will begin full-scale audits of internal accounting control systems for companies with significant accounting violations and strengthen audit quality-focused supervision of accounting firms, including evaluations of their quality control levels. It will conduct intensive crackdowns on unfair trading forces and strictly investigate cases with a high risk of unfair trading, such as private convertible bond (CB) issuing companies and companies on the brink of failure.

In addition, the FSS will inspect illegal transactions and risk factors such as bond parking and wash trading related to securities firms' trust and wrap accounts, and will also focus on illegal credit extensions and self-serving acts related to major shareholders of asset management companies and real estate trust companies.