Lucent Block Fails After Four Years of Distribution Verification; Lee Eok-yeon Says 'Issuance Exceptions Are Different from Distribution Approval'

Heo Se-young, CEO, stated, "The distribution is specified in the designation... verification has been completed."
Lee Eok-yeon, Chairman of the Financial Services Commission, said, "It's just the distribution of our products... it's different from market approval."
The Financial Services Commission leaves room for additional approvals... Lucent requests a formal review opportunity.

[Block Media, Reporter Oh Su-hwan] Lucent Block, which failed to obtain preliminary approval for a fractional investment distribution platform, and the Financial Services Commission are in direct conflict over the nature of the existing financial regulatory sandbox. While Lucent Block claims it has already verified its distribution business through the sandbox, the Financial Services Commission has drawn a line, stating that the sandbox was an issuance-centered exception and separate from distribution platform approval.

Heo Se-young, CEO of Lucent Block, attended the National Assembly's Political Affairs Committee audit as a witness on the 8th and raised objections to the Financial Services Commission's interpretation of the existing sandbox. Lucent Block was eliminated from the preliminary approval review for the fractional investment distribution platform in February. At that time, the Financial Services Commission selected KDX, led by the Korea Exchange, and NXT, led by NextTrade, as the candidates for preliminary approval.

Lucent Block: "Both the Designation and Regulatory Impact Analysis Specify Distribution"

CEO Heo stated, "When the innovative financial service was designated in April 2021, it was specified that it was a service distributing to investors using blockchain's distributed ledger technology, not issuance." He argued that it is inappropriate to interpret Lucent Block's business solely as an issuance exception since the designation includes content related to market opening permission.

He also presented the regulatory impact analysis document prepared last May as evidence. According to CEO Heo, the document classifies Lucent Block as a 'regulated entity' subject to regulation and specifies the formal institutionalization of the unlisted stock and fractional investment distribution platform operated through the sandbox. Furthermore, it contains an evaluation stating, "Based on the operation of the sandbox, the compliance possibility of the regulated entity is considered high," as explained by CEO Heo.

He emphasized, "All of this content is about distribution, not issuance." This indicates that they have already proven their operational capabilities and regulatory compliance through four years of verification.

Lee Eok-yeon: "The Sandbox is for Issuance... Distribution is for Maintaining Issuance"

Chairman Lee maintained that the existing sandbox and this approval have different scopes of business. He stated, "The regulatory sandbox was granted for the issuance of fractional investments, and what we are trying to provide now is distribution," adding, "If there is issuance, distribution must occur to maintain that issuance, so it is allowed only to that extent."

He explained that while distribution itself was not prohibited in the sandbox, it was limited to the scope necessary for trading products directly issued by the business operator. Chairman Lee emphasized, "There is a difference between distributing a single item that one has issued and a market that distributes products from all issuers."

He mentioned that the issuance approval process is being conducted to allow Lucent Block to continue its existing business. Like other fractional investment operators, Lucent Block is also undergoing the issuance approval process.

The crux of the dispute between the two sides ultimately centers on how far the distribution allowed in the sandbox will be recognized in the formal approval process.

National Assembly: "Startups' Achievements Taken by Large Institutions"... Financial Services Commission: "Reviewing Additional Approvals"

In the National Assembly, criticism was raised that despite innovative companies proving marketability through verification, the approval opportunities went to large financial institution-led consortiums.

Representative Jo Jeong-hoon of the People Power Party criticized, "Startups have struggled for seven years to obtain regulatory sandbox approval to prove that this business is possible, but it seems that large institutions have taken it all away." He also pointed out that limiting the number of approval targets to two raises the question, "If there are three, will the fractional investment industry collapse?" and emphasized that Lucent Block should be given a separate review opportunity.

Chairman Lee expressed, "I also find this part the most regrettable," and stated, "Startups are the future hope of Korean society, and we need to create a playground where young people's passion can be expressed."

However, he emphasized that the approval review was conducted fairly according to established procedures. He explained that exceptions were recognized for the investment restrictions of venture capital (VC) funds during the review process and that conditions unfavorable to startups were eased to maintain the existing consortium.

He explained that limiting the number of approval targets to two was a policy decision considering market conditions and efficiency. He added, "As the market develops, we will look into whether there are areas where we can provide more approvals," leaving the possibility of additional approvals open. The Financial Services Commission had also stated during the preliminary approval announcement in February that it would review the possibility of additional approvals considering market demand and competitive conditions.

Heo Se-young: "Seeking Formal Review Under the Law, Not Special Treatment"

CEO Heo clarified that this request is for a formal review opportunity under the law, not special treatment. He stated, "What we are asking for is absolutely not a request to overturn any decision or automatically grant approval," and added, "According to Article 21 of the Special Act on Financial Innovation Support, there is already a procedure for innovative financial businesses to apply for formal approval."

He continued, "I want to be evaluated on the results of four years of verification and regulatory compliance through this procedure," and added, "If we meet the requirements, we want to compete coldly and fiercely in the market."

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