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STO market launch faces uncertainty as FSC delays licensing approvals over fairness concerns
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By Jun Ji-hye
Assembly passes tokenized securities bills without partisan dispute
The financial regulator’s decision to postpone preliminary approvals for over-the-counter trading platforms for security tokens, amid fierce resistance from a fintech startup, has cast uncertainty over the launch of the fast-emerging security token offering (STO) market, industry sources said Thursday.
The legal groundwork for the market’s launch was put in place later in the day, as the National Assembly passed amendments to the Capital Markets Act and the Electronic Securities Act, which focus on institutionalizing tokenized securities, without any major disputes between the ruling and opposition parties.
However, delays in granting preliminary approvals for security token trading platforms have made it increasingly likely that the start of operations will be pushed back. This has fueled concerns that the market, forecast to grow to 367 trillion won ($250 billion) by 2030 from 34 trillion won in 2024, could lose momentum before it even gets off the ground as disputes intensify over control of key market infrastructure.
STOs integrate fractional investments, which involve shared ownership and profit rights in real-world assets such as real estate and art, into the formal financial system through blockchain-based infrastructure.
The Financial Services Commission (FSC) on Wednesday held off on deciding which entities would receive preliminary approval to operate security token trading platforms, citing the need for additional review.
The KDX consortium led by the Korea Exchange, the NXT consortium headed by alternative trading platform Nextrade and the Lucentblock-led consortium have applied for approval.
The delay comes amid strong backlash from Lucentblock following reports that deliberations at the Securities and Futures Commission had effectively narrowed potential candidates to the KDX and NXT consortia ahead of the FSC’s regular meeting. Lucentblock accused authorities of sidelining an innovative startup and called for a fair and transparent evaluation process.
Lucentblock CEO and co-founder Huh Se-young speaks during a press briefing in Seoul, Monday, to outline the company’s position on the licensing of over-the-counter trading platforms for security tokens. Yonhap
Established in 2018, Lucentblock has operated the nation’s first real estate fractional investment platform under the FSC’s regulatory sandbox program. The company has played a leading role in developing the market, amassing 500,000 users and recording cumulative asset transactions of 300 billion won.
"We endured years of regulatory uncertainty while helping lay the groundwork for STO guidelines and legislation, only to find ourselves at risk of being edged out of the market by established financial institutions," Lucentblock CEO and co-founder Huh Se-young said in a recent statement.
In particular, the alleged technology misappropriation involving Nextrade has emerged as a key flashpoint in the review.
Huh claimed that Nextrade approached his firm under the guise of potential investment and consortium participation, signed a nondisclosure agreement and obtained sensitive information such as financial data, business plans and proprietary technology. He added that Nextrade later broke off the talks and submitted its own license application in the same business area.
The issue was highlighted during a recent National Assembly audit, when Rep. Park Beom-kye of the ruling Democratic Party of Korea likened the situation to “a team owner taking the field as a player,” citing it as a case of startup innovation being undermined.
Questions have also been raised over the Korea Exchange’s bid to enter a market cultivated by startups, despite having posted no tangible results in the relevant area.
As the selection process has increasingly appeared to favor large institutions, authorities have faced growing criticism that the policy undermines the core goals of innovation-driven financial reform.
The FSC is expected to seek additional explanations regarding the allegations and to reexamine the suitability of its screening standards.
"I hope the review would ultimately result in an outcome that aligns with the intent of the Special Act on Support for Financial Innovation and the fundamental objectives of the regulatory framework," Huh said.