In response to rapid digitalization across global asset markets, Korea should enhance the international competitiveness of its digital asset industry while striving to gain investors’ confidence in the digital asset market. In this regard, it is desirable to adopt a two-track approach. Under this approach, Korea’s virtual asset market would gain investors’ confidence with the enactment of the digital asset law, while the issuance and trading of security tokens should be dealt with through the reform of the existing Financial Investment Services and Capital Markets Act (the “FSCMA”). For effective implementation of the two-track policy, it is necessary to closely analyze the convergence of the virtual asset market and the capital markets and devise measures to secure consistency in the regulatory scheme.
Most Importantly, the digital asset law designed to regulate the new virtual asset market should be promptly enacted to ensure the sustainable development of Korea’s Initial Coin Offering (ICO) market. The matters to be specified in the law include the definition of an issuer responsible for disclosure of material information, the Korean version of white paper, mandatory disclosure of material changes in the white paper, classification of ICO-related unfair trading practices and strict restrictions on such practices. For sustainable development of Korea’s Security Token Offering (STO) market, features of the virtual asset market should be reflected in the reform of the FSCMA. Relevant regulatory improvements include how to catch up with the innovation of blockchain technology using regulatory sandboxes, the fiduciary duty of security token depository agencies regarding protection of customers’ digital assets, the regulation of low-price speculative tokenized securities, and improvement plans for the STO infrastructure. Also necessary is to increase the predictability of Korea’s virtual asset market by distinguishing the jurisdiction of the FSCMA from that of the proposed digital asset law. This requires mandatory procedures for determining whether a virtual asset is a security under the FSCMA.