National Assembly Political Affairs Committee Questions FSC Chairman Lee Eogwon on Pending Issues
The issue of "fairness" surrounding the licensing of an over-the-counter marketplace for fractional investment, which will handle distribution after the institutionalization of Security Token Offerings (STO), was brought to the fore at the National Assembly’s Political Affairs Committee on the 5th. Following the official protest by the startup Lucentblock and President Lee Jaemyung’s remarks at a Cabinet meeting, lawmakers at the standing committee also raised concerns that this was "undermining innovation," prompting Financial Services Commission (FSC) Chairman Lee Eogwon to reaffirm his stance that "we will examine the matter thoroughly and conduct a fair and rigorous review."
Park Beomgye, a lawmaker from the Democratic Party of Korea, referred to the case of the startup Lucentblock, which is known to have been eliminated in the licensing process despite operating an STO distribution service for seven years under the regulatory sandbox, while questioning Chairman Lee, who attended the committee that day. He stated, "If you create a new industry by putting forward a new idea in the form of a sandbox, but later put up hurdles in the licensing process so it cannot continue, would that not actually block innovation? This also does not align with the policy of the Lee Jaemyung administration."
Previously, it was reported that on January 7, the Securities and Futures Commission under the FSC selected the "KDX Consortium," centered on Korea Exchange (KRX), and the "NXT Consortium," led by Nextrade (NXT), as preliminary licensees for STO over-the-counter marketplaces. As controversy spread after Lucentblock, effectively eliminated, raised issues over the fairness of the licensing process and alleged technology theft, the FSC has been agonizing over the matter, postponing the submission of the relevant agenda item to the FSC’s regular meeting, which is a formal final approval procedure, twice (January 14 and 28). More recently, President Lee Jaemyung even made the unusual move of mentioning the case during a Cabinet meeting.
In particular, Park criticized the participation of Korea Exchange as a member of a consortium, saying, "It is no different from a team owner driving out players and then playing as a player himself," and added, "Under the rules, it avoided being classified as the largest shareholder by using non-voting shares to circumvent a majority shareholder stake. Yet it still retains the right to recommend three positions: the CEO, a director, and an auditor. In substance, they hold effective control, and this is a case of ‘pretending not to see what is obvious.’"
He also questioned whether the current situation, in which the institutionalization of STO demonstrations is ultimately flowing toward large corporations and capital power, is "intended to create positions for senior officials of the FSC and the Financial Supervisory Service after they step down." Regarding the technology theft allegations raised by Lucentblock against Nextrade, he said, "They (Nextrade) say they have never seen any trade secrets, but the trade secrets of a financial innovation service are like Columbus’s egg," adding, "Because the pioneering idea itself is highly valued, there is room for technology theft," thereby lending weight to Lucentblock’s claims.
Lucentblock is a startup that has operated the STO service "Soyu" since being designated as an innovative financial service by the FSC in 2018. It has approximately 500,000 users and has recorded cumulative asset issuance and distribution of about 30 billion won. Lucentblock previously argued that Nextrade signed a Non-Disclosure Agreement (NDA) under the pretext of reviewing an investment, received confidential materials, and then used them in the competing licensing process.
In response, Chairman Lee Eogwon said, "The licensing process is still underway and nothing has been finalized." After explaining that the experience of existing innovative operators like Lucentblock is designed to be reflected as a positive factor in the review process, he added, "We will examine everything thoroughly and conduct a fair and strict review. Once the results are announced, we will explain as fully, transparently, and in as much detail as possible what the grounds were."
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