South Korea issues guidelines for classifying NFTs as virtual assets
Mass-produced, divisible, and payment-focused NFTs to be regulated as crypto.
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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 Asset User Protection Act’ by July 19 this year.
Under the new guidelines, NFTs that are mass-produced, divisible, and can be used as a means of payment will be regulated similarly to cryptocurrencies. The FSC believes that NFT collections with high quantities have a higher probability of being 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 could be used as a payment method. However, the FSC noted that it will distinguish collections through a case-by-case review, meaning there will be no absolute standard in interpreting NFTs as crypto.
NFTs that possess little to 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 showcase features specified in South Korea’s Capital Markets Act.
The FSC previously mentioned that virtual assets must receive interest when deposited into a crypto exchange as part of the new rules for virtual assets set to take effect in July 2024. While regular NFTs and central bank digital currencies (CBDCs) are excluded from this requirement, the new update from the FSC reiterates that NFTs classified as virtual assets can receive interest once they are deposited on exchanges.
Businesses handling NFTs must review the guidelines to determine if their NFTs qualify as virtual assets. If so, they must comply with the ‘Specific Financial Information Act,’ which covers the sale, exchange, transfer, storage, and brokerage of virtual assets. Failure to report as a virtual asset business operator could result in criminal penalties.
The FSC offers consultation services for businesses uncertain about their NFTs’ classification and will provide examples and case judgments to assist businesses in navigating these new regulations.
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