The FSC of Korea Orders Virtual Asset Exchanges to Delist Security Tokens

[Executive Summary]

• The FSC of Korea has ordered virtual asset exchanges to classify and delist security tokens that are currently being managed. This is expected to speed up the systemization process for security tokens. The delisting procedure will be carried out consistently throughout the exchanges, and measures to protect investors and minimize market shocks will be discussed with the FSC. However, the responsibility for classifying security tokens is left to the virtual asset exchanges.

On January 31st, 2023, at a meeting with officials from the 5 major virtual asset exchanges (Upbit, Bithumb, Coinone, Korbit, Gopax) and Digital Asset eXchange Alliance (“DAXA”), the Financial Services Commission of Korea ordered virtual asset exchanges to classify and delist security tokens among those they are currently handling. The systemization process for security tokens will move forward.

Since securities can only be handled by business operators with a trading license, it can be interpreted as the FSC deciding to prevent virtual asset exchanges from handling virtual assets with attributes of securities. Once these guidelines are carried out, it is highly likely that many of the tokens listed on existing virtual asset exchanges will be delisted or transferred to securities companies.

According to the meeting, the delisting procedure will be carried out consistently throughout the exchanges with the standards to be established by DAXA, and measures to protect investors and minimize market shocks will be discussed with the FSC. However, the classification of tokens with attributes of securities is left to the virtual asset exchanges to determine based on the Fractional Investment Guidelines and Security Token Guidelines announced by the FSC.

As was previously said, security token issuers and cryptocurrency exchange operators are largely responsible for delisting security tokens. The precise procedure for de-listing security tokens has not yet been made public, despite the FSC’s assurance that it will avoid taking a too aggressive stance in an effort to reduce any market shocks. Follow our blog posts to gain insight on the de-listing procedure and relevant regulations through our further analysis and interpretation as the FSC’s guidelines are implemented in the market.

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