FSC unveils guideline on 'fractional investment' to enhance investor protection

The Financial Services Commission headquarters in Seoul / Yonhap

Korea's financial regulator unveiled a guideline on the operation of "fractional investment," Thursday, vowing to step up monitoring of the fast-growing industry.

The Financial Services Commission (FSC) also said it will determine whether fractional investment has the nature of "securities" by "comprehensively" taking into consideration terms of contracts and details on investment methods of each case.

The guideline came about a week after the FSC categorized Musicow, the country's first copyright trading platform, as a tool for securities trading, a decision that will put the tech startup under regulatory monitoring.

Launched in 2016, Musicow allows investors to buy or sell a stake in music copyrights on its platform in a way similar to securities trading.

Despite such similarities and a fast-growing user base, especially among those in their 20s and 30s, the company has not been under the same regulatory scrutiny as other financial services firms, raising worries that investors would not be sufficiently protected if it were to go under.

The decision on Musicow was based on the judgment that the trading on its platform was not about buying ownership of copyrights but trading the right to claim profits from the assets.

The Musicow case marked the first of its kind and is expected to have a far-reaching impact on the fractional investing services that have been springing up not just in trading of music copyrights but also of art, real estate and many other types of assets.

The FSC said that anyone trying to issue or circulate fractional investment products should strictly comply with the Capital Markets Act and other relevant regulations or face a penalty.

However, it left room for flexibility in enforcing the regulations, saying exemptions could be possible if a specific business proves to be "innovative" and takes sufficient measures to protect investors. (Yonhap)