NFTs
NFTs now subject to regulation
South Korea’s Financial Services Commission (FSC) revealed a new regulatory framework for non-fungible tokens (NFTs). The guidelines, issued ahead of the upcoming Virtual Asset User Protection Act, which goes into effect on July 19, 2024, aim to bring clarity and structure to the growing NFT market while protecting investors and promoting responsible innovation. .
Fungibility takes center stage
The core of the FSC approach depends on the concept of fungibility – the ability for an NFT to be exchanged for another identical NFT. NFTs that are mass-produced, divisible and primarily function as a means of payment will be classified as virtual assets and subject to similar regulations as cryptocurrencies.
In a thought-provoking interview, Jeon Yo-seop, the architect behind financial innovation at FSC, suggested a mind-bending possibility: a digital vault overflowing with 1 million NFTs, functioning not just as collectibles, but as currency itself!
However, the FSC, always a cautious guardian, has emphasized that each NFT collection will be examined as a unique fingerprint, with no one-size-fits-all approach to classifying them as crypto.
A spectrum of NFT regulation
The FSC recognizes the diverse applications of NFTs. Single, indivisible NFTs with minimal monetary value, such as those used for concert tickets or digital certificates, will likely be categorized as “general NFTs” and exempt from stricter regulations.
The guidelines also leave room for NFTs to be classified as securities if they exhibit the characteristics outlined in South Korea’s Securities Market Law. This nuanced approach ensures that regulations adapt to the evolving nature of NFTs in the digital landscape.
Businesses Beware: Compliance Is Key
NFT companies in South Korea are advised to carefully review FSC guidelines to determine whether their offerings qualify as virtual assets. Companies trading such NFTs will need to comply with the Specific Financial Information Law, which governs the sale, exchange, transfer, storage and brokerage of virtual assets.
Failure to comply with these regulations can result in heavy fines or even criminal penalties. The FSC recognizes the potential complexities for businesses and has committed to offering consultancy services to help them navigate the new regulatory landscape. This includes providing real-world examples and case studies to help companies safely classify their NFTs.
South Korea’s NFT Market Poised for Growth
The NFT market in South Korea is expected to grow significantly, with the amount spent on NFT projected to increase from US$938 million in 2022 to US$4 billion in 2028, representing a compound annual growth rate (CAGR) of 34%.
The country has seen a surge in NFT adoption, with the number of NFT owners growing from 10,000 in 2020 to 760,000 in 2021 and predicted to reach 970,000 in 2024 and 1.02 million in 2025, according to the latest data.
Featured image from Getty Images, chart from TradingView