Regulation
South Korea to 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.
NFT are primarily unique assets that cannot be replicated, the characteristics that differentiate them from cryptocurrencies would be treated as virtual assets, a June 10 South Korean FSC report noted.
Specifically, the report that NFTs are divisible, can be mass produced, or can be used as payment, all of which are now classified under South Korea’s newest framework.
Companies that issue NFTs classified as virtual assets are now obliged to report it to the South Korean watchdog.
The new directive precedes the country’s first crypto regulatory framework is expected to be implemented on July 19.
According to Jeon Yo-seop, head of financial innovation planning at FSC, NFT collections issued in huge quantities are most likely to be used as a means of payment.
As an example, the an official said that if a million NFTs were issued into a collection, they could be traded and used as payment, just like cryptocurrencies.
He suggested that there would not be a single standard for classifying NFTs as virtual assets. The FSC will instead make the distinction via a case-by-case review approach.
Additionally, if an NFT has the financial security features as detailed in the country’s capital markets law, it can be classified as a security.
With the implementation of the new guidelines, some NFTs may even be eligible to receive interest when deposited into an exchange. It is by a FSC noticereleased late last year, which requires that virtual assets deposited on crypto exchanges be eligible to earn interest.
However, classic 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 Act. Scheduled to take effect a week later, it aims to criminalize bad practices such as using undisclosed information for crypto investments, manipulating market prices and participating in fraudulent transactions.
The law project was adopted in 2023 by the country’s National Assembly. Cryptocurrency-focused entities were then given a one-year grace period to comply with the regulations.
To complement these efforts, South Korean regulators also launched a crypto crimes unit. Nicknamed the Joint Virtual Asset Crime Investigation Unitthe entity included 30 experts from seven national agencies.