NFTs
South Korea issues guidelines to classify NFTs as virtual assets
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The Financial Services Commission (FSC), South Korea’s financial watchdog, has issued guidelines detailing when non-fungible tokens (NFTs) should be considered virtual assets. The country is preparing to implement the ‘Virtual Assets User Protection Act’ until July 19 of this year.
Under the new guidelines, NFTs that are mass-produced, divisible and can be used as a means of payment will be regulated in a similar way to cryptocurrencies. The FSC believes that NFT collections with large quantities are more likely to be used as payment, especially if there are a large number of transactions.
Jeon Yo-seop, head of the FSC’s Financial Innovation Planning Division, stated in an interview that if an NFT collection consists of 1 million NFTs, it is likely that they can be used as a payment method. However, the FSC noted that it will distinguish collections through a case-by-case analysis, meaning there will be no absolute standard in interpreting NFTs as crypto.
NFTs that have little or no value, such as those used in ticketing or digital certificates, will be treated differently and classified as general NFTs. The guidelines also suggest that NFTs could be treated as securities if they exhibit specified characteristics in South Korea. Capital Market Law.
The FSC previously mentioned that virtual assets must earn interest when deposited on a crypto exchange as part of new rules for virtual assets set to come into effect in July 2024. While regular NFTs and central bank digital currencies (CBDCs) are excluded from this requirement, the new FSC update reiterates that NFTs classified as virtual assets can receive interest as soon as they are deposited on exchanges.
Companies that handle NFTs should review the guidelines to determine whether their NFTs qualify as virtual assets. In this case, they must comply with the “Specific Financial Information Law”, which covers the sale, exchange, transfer, storage and brokerage of virtual assets. Failure to report as a virtual asset business operator may result in criminal penalties.
The FSC offers advisory services to companies that are unsure about classifying their NFTs and will provide case examples and judgments to help companies navigate these new regulations.
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