NFTs
South Korea to Unveil Strict Rules for Digital Assets, Here’s Everything
The imminent enactment of the Korean Virtual Asset User Protection Law heralds a significant change in regulatory oversight in South Korea’s digital asset landscape. This legislation aims to impose strict regulations on companies involved in the issuance of non-fungible tokens (NFTs) classified as virtual assets.
Specifically targeting NFTs with features such as extensive issuance, divisibility, and usefulness as a means of payment, the law seeks to improve oversight and protection in the growing NFT market. By requiring companies to report their operations to regulatory authorities, the legislation aims to promote greater transparency and regulatory compliance among entities involved in digital asset transactions.
Detailed guidelines and implementation of the law
The enactment of the Virtual Asset User Protection Act on July 19 will usher in a new era of regulatory clarity around non-fungible tokens (NFTs) within South Korea. The Financial Services Commission recently released comprehensive guidelines outlining the criteria for classifying NFTs as virtual assets.
While NFTs traded for content collection purposes are excluded from the purview of virtual assets, those that exhibit characteristics of securities or serve as a means of payment are under regulatory scrutiny. The guidelines stipulate several parameters, including issuance scale, divisibility, and transaction utility, to determine the status of NFTs’ virtual assets. Additionally, the law requires operators issuing NFTs that meet virtual asset criteria to report their activities to regulatory authoritiesensuring compliance with the regulatory framework.
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Compliance and Reporting Obligations for NFT Operators
With the issuance of comprehensive guidelines, operators involved in the distribution and handling of NFTs face a pivotal moment in regulatory compliance. The first step involves a thorough assessment to verify whether the NFTs in question meet the criteria for classifying them as virtual assets.
If an NFT falls under this designation, operators must closely examine their business activities to determine whether they encompass trading, exchanging, transferring, storing, brokering, or mediating NFT transactions as described in the Specific Financial Information Act. Failure to report activities such as virtual asset transactions may incur criminal penalties. Operators who encounter ambiguity regarding the classification of NFTs are encouraged to seek guidance from financial authorities, with future examples elucidating the judging criteria for individual cases.
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