FSC may overturn outcome of STO OTC exchange selection…weighing a return to the agenda subcommittee

FSC holds off twice on 'STO OTC exchange selection'

Tilting toward 'reopen a separate agenda subcommittee for renewed deliberations'…likely to present a compromise

South Korea’s Financial Services Commission (FSC) has been caught in a dilemma over preliminary approvals for token securities (STO) over-the-counter (OTC) exchanges. Criticism from the Blue House and political circles has disrupted its original plan to approve two applicants—the Korea Exchange (KRX) consortium and the NextTrade consortium. Yet reversing a result already fixed through internal and external screening would inevitably invite allegations of “external pressure.” For now, the FSC is considering an option to return to the previous stage—the agenda review subcommittee—and revise the conclusion.

According to financial authorities on the 28th, the FSC is weighing whether to reopen the Agenda Review Subcommittee (the “agenda subcommittee”) to reassess its stance on selecting STO OTC exchange operators. By not placing the preliminary-approval item on the agenda of the FSC’s regular meeting held the previous day, the FSC has effectively bought two weeks until the next regular meeting.

A senior FSC official said, “We decided to take time to carefully review the issues being raised and deliberate,” adding, “If necessary, we plan to reopen the agenda subcommittee, and even in that process we will adhere to our principles.”

The agenda item—“application for preliminary approval for an STO OTC exchange financial investment business”—is ultimately decided in the sequence of: review by the Financial Supervisory Service’s External Evaluation Committee → deliberation by the FSC’s Securities and Futures Commission → deliberation by the FSC agenda subcommittee → resolution at the FSC regular meeting. The regular meeting, the final stage, in practice only decides whether to pass or reject the item as submitted.

However, the FSC’s consideration of returning to the “agenda subcommittee,” the immediately preceding stage, suggests a high likelihood it will revise the substance of the item. In other words, it is leaving open the possibility of supplementing the existing plan to grant preliminary approvals to the KRX consortium and the NextTrade consortium, or changing course.

A financial authorities official said, “We will preserve the original decision, but also go through a step of reinforcing and justifying the authorities’ conclusion so that Lucentblock does not feel unfairly treated,” adding, “We plan to gather substantial feedback to ensure a flawless decision.”

In the financial industry, many expect the FSC to maintain the selection results for the KRX and NextTrade consortia. As the first case of creating a licensing and approval framework for institutionalization, the conclusion was reached by prioritizing stability and infrastructure. Still, attention is focused on whether the FSC will additionally grant Lucentblock consortium a “conditional” approval subject to stringent implementation requirements.

If the FSC pushes ahead with excluding Lucentblock, the “procedural legitimacy” of the authorities’ screening process—including the FSS external evaluation committee and the Securities and Futures Commission—can be maintained. If, instead, it adjusts the conclusion toward a conditional approval for Lucentblock, it could create a startup success story within the regulatory sandbox regime. However, because it would amount to overturning an item that already passed the agenda subcommittee, the market is likely to demand convincing justification and logic.

A financial industry official said, “With political sentiment and the Blue House joining in, if the process being advanced is reversed, every operator will send petitions to the Blue House,” adding, “The FSC is likely to agonize deeply to avoid falling into self-contradiction.”

The FSC, the competent ministry, is struggling to reach a decision because the issue is being closely watched on many fronts. Heo Se-young, CEO of Lucentblock, held an emergency press conference and claimed, “We were recognized by the FSC as an innovative financial service and pioneered this market, but in the end we have been driven to the brink of closure.” The controversy has grown, especially among startup circles, and even President Lee Jae-myung directly mentioned the matter at a Cabinet meeting on the 20th, saying, “Licensing and approval procedures must be as transparent and fair as possible, so each ministry should exercise its authority to verify.” As this suggests the FSC’s judgment alone is not sufficient, it is also interpreted as criticism of the FSC’s internal screening process.

Some members of the National Assembly’s Political Affairs Committee from the Democratic Party of Korea are also reportedly planning to convey opinions to the financial authorities expressing concerns about the fairness and transparency of the review. A Democratic Party official said, “Under a standard that seeks to choose those with abundant physical and human resources, startups cannot win when competing against traditional incumbents in the regulated sector,” adding, “Even if the external evaluation committee is convened again, I believe the relevant matters should be reviewed again.”

Reporter Shin Min-kyung, Hankyung.com radio@hankyung.com