Financial regulators in South Korea are working to bring security tokens into the scope of the country’s capital markets rules.

South Korea’s Financial Services Commission (FSC) on Monday published guidelines on which blockchain-based iterations of traditional securities, known as security tokens, will qualify for regulation under the country’s capital markets rules.

The guidance comes ahead of highly anticipated regulations that will institutionalize security tokens.

South Korea is working to regulate the crypto and blockchain sector comprehensively, with lawmakers of the country’s National Assembly considering 17 separate crypto-related legislative frameworks. The discussions are aimed at creating the Digital Asset Basic Act (DABA), an all-encompassing legal framework for regulating Korea’s dynamic crypto industry.

Security tokens refer to the digitalization of securities under the Capital Markets Act using distributed ledger technology, according to the guidance, and will apply only to digital assets that qualify. The guidance clarifies that stablecoins, which are crypto pegged to the value of other currencies such as the U.S. dollar and are used for payments or as a medium of exchange, will likely not fall under the definition of securities. Digital assets that have no issuer and do not have to “fulfill the obligations commensurate with the investor’s rights,” will also likely fall outside of the scope of security tokens.

“On the other hand, digital assets corresponding to securities must be issued and distributed in compliance with all securities regulations under the Capital Markets Act,” the FSC said.

The planned rules are aimed at supporting innovation while ensuring consumer protection, according to the guidelines.

“During the first half of 2023, we will promote institutionalization by submitting amendments to the Electronic Securities Act and Capital Markets Act to the National Assembly,” the FSC said.

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The acquisition sees Binance re-enter South Korea’s market, having closed its affiliate there in December 2020 due to low usage.

Binance has acquired a majority stake in South Korean crypto exchange GOPAX, according to a Bloomberg report on Friday.

The acquisition sees the world’s largest crypto exchange by trading volume re-enter South Korea’s market, having closed its affiliate there in December 2020 due to low usage. Terms for the deal were not disclosed.

Binance’s investment in GOPAX came via the Industry Recovery Initiative, which Binance leads and committed $1 billion to in November, in response to the fallout from the collapse of FTX.

GOPAX’s parent firm Streami Inc, in which CoinDesk parent company Digital Currency Group (DCG) became the second largest shareholder in 2021, is one of the largest creditors of bankrupt crypto lender Genesis, which is also a DCG subsidiary.

Following Genesis’ suspension of withdrawals in November, GOPAX did the same with its yield product GoFi.

The Binance capital injected into the firm will allow withdrawals and interest payments to recommence, according to the Bloomberg report.

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Authorities in the country have trending towards strict oversight since the TerraUSD collapse.

Seven large traditional brokerages in South Korea have started laying the groundwork for their own crypto exchanges in the first half of next year, local newspaper NewsPim reported on Monday.

The firms have applied for preliminary approval and establishment of corporations to run virtual asset exchanges, the report said.

Mirae Asset Securities and Samsung Securities are among the seven firms, the newspaper reported citing anonymous industry sources. Mirae has established a subsidiary under its affiliate Mirae Consulting, which is hiring technical staff for various cryptocurrencies and non-fungible tokens, while Samsung is studying how to enter the blockchain-based security tokens market, NewsPim reported. At the end of last year, Samsung could not find staff to build a crypto trading platform, the newspaper wrote.

South Korean President Yoon Suk-Yeol took office in May and had promised to be more friendly to the crypto industry and nurture new projects. However, due to the collapse of stablecoin TerraUSD (UST), authorities have become more stringent, raiding exchanges and flagging others for not registering properly.

The fact that big traditional firms are looking to enter crypto is in line with Yoon’s easing of regulations, NewsPim wrote.

Under former president Moon Jae-In, South Korean authorities had been trying to regulate the burgeoning crypto sector, requiring exchanges to register in a painstaking process.

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A probe has been launched into Do Kwon’s Terraform Labs over alleged embezzlement of the company’s bitcoin.

South Korean law enforcement agencies are investigating Terraform Labs following last month’s collapse of their controversial algorithmic stablecoin, TerraUSD (UST), according to a report by the Financial Times.

The Seoul Metropolitan Police Agency has launched a probe into allegations of embezzlement of an undisclosed amount of Terra’s bitcoin holdings, the report said.

Terra held $3.5 billion worth of bitcoin (BTC) in its reserves, in a failed attempt to stabilize the price of UST.

Terraform co-founder Daniel Shin denied allegations of fraud, telling the FT that there was “no intention of deception” and that the company wanted to innovate the payment settlement system using blockchain technology.

Last month South Korean authorities estimated that around 280,000 of its citizens had been impacted by the collapse of UST and Luna (LUNC).

Since the implosion of Terra’s stablecoin, the company has launched a new token (LUNA) that was airdropped to previous holders. LUNA is currently trading at $3.12 with a market cap of $642 million and has lost 80% of its value since last week’s peak.

Terraform Labs did not immediately respond to CoinDesk’s request for comment.

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