The FSS Initiates a TF Team To Determine Which Virtual Assets Will Be Considered Securities

The Financial Supervisory Service (“FSS”) of Korea announced on the 14th that it has launched a task force (“TF”) team to support the process of determining which virtual assets to be considered as securities. It plans to prepare an inspection checklist to confirm the digital assets’ attributes of securities and to accumulate related individual cases. In addition, a separate TF team of external experts from the securities industry and the legal community, for instance, will be formed.

As it became clear that virtual assets to be considered as securities shall be regulated by the Financial Investment Services and Capital Markets Act (“Capital Markets Act”), just as tokenized securities are, regardless of their form, the systemization of security token regulation has gained momentum. On the other hand, virtual assets that are deemed non-securities, such as Bitcoin or Ethereum, will be regulated by the Framework Act on Digital Assets which is currently under discussion to be legislated. Since virtual asset exchanges cannot handle securities according to the Capital Markets Act, any of the virtual assets circulated in existing virtual asset exchanges will be sanctioned if the authorities judge them to be securities.

According to industry sources, the Digital Asset Research Team under the FSS is closely watching the SEC and Ripple lawsuits as a notable precedent. In December 2020, the U.S. Securities and Exchange Commission (“SEC”) sued Ripple Labs, which issued the cryptocurrency Ripple, for violating the Securities Act.

The U.S. financial authorities use the Howey Test, a 1946 Supreme Court precedent, to determine whether digital assets have attributes of securities. The SEC has also provided investment contract guides for virtual assets since 2019. It is expected that the results of the lawsuit, which will be announced in March at the earliest, will have a great impact not only in the U.S. but also in Korea on the criteria for determining whether virtual assets are securities.

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