South Korea’s Financial Services Commission has proposed detailed subordinate rules that would allow stocks, bonds and investment funds to be issued and traded as tokenized securities beginning February 4, 2027. The framework expands regulated tokenization beyond the current focus on fractional investment products and sets technical and operational standards for distributed ledgers used in capital markets.

Public consultation on the draft rules runs from October 2 through November 11. After comments are reviewed, the measures will move through remaining regulatory steps, including approval by the commission, review by the Ministry of Government Legislation and Cabinet processes, before the amended Electronic Securities Act and Capital Markets Act take effect.

Phased Expansion of Tokenized Securities

The commission is implementing the new regime in stages. The first phase, scheduled to begin when the laws take effect in February 2027, covers privately placed money-market funds and bonds aimed at institutional investors, unlisted stocks tokenized through trust structures, and publicly offered fractional investment securities.

A second stage would open tokenization to publicly offered traditional securities once authorities evaluate the initial phase. A later stage contemplates linking the tokenized securities infrastructure to on-chain settlement systems that could incorporate stablecoins. Timing for the later stages remains flexible and depends on technological readiness, market performance and progress on domestic stablecoin legislation.

Under the proposal, a tokenized security is treated as a digital form of an existing regulated security rather than a separate asset class. Stocks, corporate bonds, fund interests and other capital-market products therefore remain subject to existing investor-protection and market-conduct rules when issued on a distributed ledger.

Issuer Requirements and Account Management

Entities seeking to issue tokenized securities must share access to the distributed ledger with the Korea Securities Depository and at least two designated account-management organizations. Direct fees for ledger use are prohibited.

For the first time, organizations outside traditional financial firms may register as issuer account-management entities and oversee customer accounts for the securities they issue. Qualification requires equity capital of at least 4 billion won, equivalent to approximately 2.95 million U.S. dollars, plus a minimum team consisting of one account-management specialist, one internal-control specialist and two information-technology professionals. Systems must meet cybersecurity and operational standards set by the regulator.

Issuers that do not meet these thresholds can still issue tokenized securities through qualified financial intermediaries. Distributed ledgers must connect to Korea Securities Depository infrastructure, which will review networks against standards covering participants, consensus mechanisms, record preservation, system failures and business continuity.

The first stage will employ a hybrid approach, particularly for unlisted shares, in which some shareholder rights continue to be managed through existing electronic securities systems while tokenized trust interests operate on distributed ledgers.

Over-the-Counter Trading and Investor Limits

The proposal expands over-the-counter authorization to cover debt securities in addition to unlisted stocks and non-monetary trust beneficiary certificates. Approved venues must maintain surveillance systems to prevent, detect and respond to unfair trading. Violations can trigger penalties, account restrictions and other sanctions available under the Capital Markets Act.

Retail investors face an annual net-purchase limit of 100 million won, roughly 73,700 U.S. dollars, on each approved over-the-counter platform. The ceiling applies on a platform-by-platform basis and is measured by net purchases during the calendar year.

Parallel Debate Over Crypto Income Tax Timing

While the tokenized-securities rules advance, lawmakers from both major parties are pressing for another postponement of the planned crypto income-tax regime. Under current law, profits from transferring or lending digital assets are treated as miscellaneous income and taxed at 20 percent on annual gains above a 2.5 million won threshold. A 2 percent local surcharge raises the effective rate to 22 percent. Taxes on 2027 gains would be due in May 2028.

The tax was originally scheduled for 2022 and has already been delayed three times, most recently to January 1, 2027. Legislators including representatives from the Democratic Party and the People Power Party have filed separate bills seeking further delays, with some proposals extending the start date to 2029 or 2030.

Industry groups such as the Digital Asset eXchange Alliance have told lawmakers that exchanges lack standardized data-sharing systems with regulators and need additional time to prepare for compliance. A survey of 2,423 Korean investors conducted by Tiger Research and Chainalysis found that 73.7 percent oppose immediate introduction of the tax. A public petition seeking another postponement has gathered more than 50,000 signatures and been forwarded to the National Assembly’s Strategy and Finance Committee.

Finance Minister Lee Hyoung-il has supported keeping the January start date, noting that 85 percent of Korean investors hold crypto assets worth less than 5 million won and would therefore face little or no tax liability after the basic deduction.

Several Korean financial institutions are already preparing products ahead of the 2027 launch. KB Securities has partnered with Securitize and the Optimism Foundation to develop tokenized funds for institutional investors, beginning with a money-market fund. Kakaopay Securities and Dinari are studying tokenization of Korean-listed shares for eligible overseas investors. Hanwha Investment & Securities has completed a platform supporting Avalanche and Hyperledger Besu, while Samsung SDS is building infrastructure for the Korea Securities Depository. Separate tests are examining the use of stablecoins for subscription and settlement processes.

The subordinate-rule proposal now under public consultation is the latest step in a multi-year effort by South Korean authorities to modernize securities infrastructure while maintaining investor protections and market integrity.