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Companies and projects have increasingly relied on the sale of digital assets, or tokens, as a means of fundraising. These tokens generally do not grant the holders an ownership interest in the issuing company or project, but may provide governance rights, access rights or other utility. This has been conducted through public sales known as initial coin offerings (ICOs), proliferation through token generation events (TGEs) or private sales, among other mechanisms. While showing characteristics of traditional methods of fundraising, there are a range of unanswered questions related to the legal classifications of such products. As ICOs and TGEs will usually be distributed online and internationally, there is usually no single legal framework applying to such transaction, and the legal framework of each market in which the tokens may be offered or sold needs to be considered.
Introduction
Attitude of the country towards ICOs/token sales
As explained in Sections 1.j.ii. and 1.j.iii. below, although there is no specific legal basis to support a prohibition of ICOs/token sales, since 2017, the financial regulators have taken the position that fundraising through the use of virtual assets is prohibited. To circumvent this prohibition, companies are known to conduct ICOs in foreign jurisdictions that permit ICOs, such as Singapore. In fact, according to the ICO status survey published by the financial regulators on 1 January 2019 in connection with 22 domestic companies, most of these companies had conducted ICOs abroad. In light of the target investors and the language of the white papers, the regulators found that such companies only conducted foreign ICOs in form, incorporating paper companies to bypass the ICO prohibition policy.
Legal affairs
Presence of any explicit regulation on ICOs and the issuance of token/coins
Currently, no law directly restricts or prohibits ICOs or the issuance of tokens or coins in Korea. However, depending on the facts of the particular ICO or issuance (i.e., the ICO/issuance structure, the legal nature of the token/coin, etc.), it may be necessary to review other issues, such as whether the issuer would be considered a VASP under the Specified Financial Information Act or whether the ICO or issuance would violate the FISCMA (where the token/coin is a financial investment instrument such as a security). The transaction could also be subject to fraud issues under the Criminal Act or be considered a violation of the Act on the Regulation of Conducting Fund-Raising Business without Permission.
Presence of any explicit restrictions on ICOs or the issuance, distribution and/or transfer of token/coins
In a press release in September of 2017, the FSC announced that it plans to ban all forms of ICOs regardless of the technology or terminology used, due to concerns about the side effects of ICOs such as risk of fraud (including inducing investments without permission through an ICO), market melt-ups and consumer harm due to increased speculative demand. Furthermore, despite the enactment of the Specified Financial Information Act in November of 2020, the KoFIU informally expressed that it would maintain the existing de facto ICO prohibition for purposes of investor protection. While the majority view is that this government policy has no clear legal basis and should therefore be interpreted as mere administrative guidance, the government continues to take a hard-line stance. Thus, ICOs in Korea can be viewed as virtually impermissible as they very clearly go against the policy of the FSC and the KoFIU. On the other hand, with respect to the distribution of coins or tokens without the payment of consideration, such as distribution through airdrops, the financial regulators have not expressed any position to limit or ban them.
Moreover, the transfer of tokens or coins is subjec