FSC Introduces Policy Roadmap on Digital Transformation and Tokenization of Securities Issuance and Circulation

The Financial Services Commission held the third private-public joint consultative body meeting on the tokenization of securities and introduced a policy roadmap on the digital transformation of securities issuance and circulation on September 4.

a) Three-phase development of infrastructure for tokenized securities issuance

A three-phase roadmap will be adopted for securities companies and the Korea Securities Depository (KSD) to develop relevant infrastructures facilitating the issuance of tokenized securities. In this regard, the tokenization of securities will include not just fractional investment securities but also conventional securities types, such as stocks, bonds, and funds.

With an update to the Act on Electronic Registration of Stocks and Bonds (“the Electronic Registration Act” hereinafter) scheduled to take effect from February 4, 2027, security tokens (or tokenized securities) are legally recognized as a digitized form of securities. Thus, the first phase of the tokenization of securities will begin from February 2027. During the first phase, the tokenization of securities will be sought for (a) privately pooled money market funds (MMFs) and bonds exclusively reserved for institutional investors, (b) unlisted stocks through a trust structure, and (c) publicly offered fractional investment securities. In the second phase, the scope of tokenization will be opened up to all publicly offered securities types. Then in the final stage, authorities will ultimately seek to establish an on-chain payments infrastructure linked to stablecoins. The second and third phase implementation will remain rather flexible depending on the outcome of the first phase tokenization process, the pace of technological innovation adopted by market participants, and the pending legislation on stablecoin.

b) Model standards on fractional investment

Fractional investment can take the form of either non-monetary trust beneficiary certificates or investment contract securities.