NFTs
South Korea will classify some NFTs as virtual assets ahead of new crypto regulations
South Korea’s Financial Services Commission (FSC) is changing its stance on non-fungible tokens (NFTs), seeking to classify some of them as virtual assets.
NFTs are mostly unique assets that cannot be replicated, the characteristics that differentiate them from cryptocurrencies would be treated as virtual assets, a South Korea FSC June 10 Report Noted.
Specifically, the report that NFTs are divisible, can be mass-produced, or can be used as a means of payment, all of which are now classified under South Korea’s newest framework.
Companies issuing NFTs classified as virtual assets are now required to report them to the South Korean watchdog.
The new directive comes before the the country’s first crypto regulatory framework scheduled to be implemented on July 19th.
According to Jeon Yo-seop, head of Financial Innovation Planning at FSC, NFT collections minted in large quantities are more likely to be used as payment.
As an example, the official declared that if a million NFTs were issued in a collection, they could be traded and used as payment, just like cryptocurrencies.
He suggested that there would be no single standard for classifying NFTs as virtual assets. Instead, the FSC will make the distinction through a case-by-case analysis approach.
Furthermore, if an NFT has financial security features as detailed in the country’s Capital Market Law, it can be classified as securities.
With the implementation of the new guidelines, some NFTs may even be eligible to receive interest when deposited on an exchange. This is for a FSC noticeissued at the end of last year, which determines that virtual assets deposited on cryptocurrency exchanges are eligible for interest generation.
However, regular NFTs and CBDCs are excluded from this benefit.
The new framework is part of South Korea’s crypto legislation, dubbed the Virtual Asset User Protection Law. Set to come into force a week later, it seeks to criminalize illicit practices such as using undisclosed information for crypto investments, manipulating market prices and engaging in fraudulent transactions.
The bill was approved in 2023 by the country’s National Assembly. Subsequently, cryptocurrency-focused entities were given a one-year grace period to comply with regulations.
To complement these efforts, South Korean regulators have also launched a crypto crimes unit. Nicknamed Joint Virtual Asset Crimes Investigation Unitthe entity was made up of 30 experts from seven national agencies.