Regulation
NFTs are now subject to regulation
This was announced by the Financial Services Commission (FSC) of South Korea a new regulatory framework for non-fungible tokens (NFTs). The guidelines, released ahead of the upcoming Virtual Asset User Protection Act that goes into effect on July 19, 2024, aim to bring clarity and structure to the thriving NFT market, while safeguarding investors and promoting responsible innovation.
Fungibility is in focus
The core of the FSC approach is based on the concept of fungibility – the ability of an NFT to be exchanged for another identical NFT. NFTs that are mass-produced, divisible and function primarily as a means of payment will be classified as virtual assets and subject to similar regulations as cryptocurrencies.
In a thought-provoking interview, Jeon Yo-seop, the architect behind financial innovation at the FSC, hinted at a mind-blowing possibility: a digital vault overflowing with 1 million NFTs, functioning not just as collectibles but as currency itself!
However, the FSC, ever the cautious watchdog, stressed that each NFT collection will be examined as a unique digital fingerprint, with no one-size-fits-all approach to classifying them as cryptocurrencies.
A spectrum of NFT regulations
The FSC recognizes the different applications of NFTs. Unique, non-divisible NFTs with minimal monetary value, such as those used for concert tickets or digital certificates, will likely be classified as “general NFTs” and exempt from stricter regulations.
The guidelines also leave room for NFTs to be classified as securities if they exhibit the characteristics outlined in South Korea’s Capital Markets Act. This nuanced approach ensures that regulations adapt to the evolving nature of NFTs in the digital landscape.
Attention companies: compliance is key
NFT companies in South Korea are advised to carefully review the FSC guidelines to determine whether their offerings qualify as virtual assets. Companies dealing in such NFTs will have to comply with the Specific Financial Information Act, which regulates the sale, exchange, transfer, storage and brokerage of virtual assets.
Failure to comply with these rules could result in heavy fines or even criminal sanctions. The FSC recognizes the potential complexities for businesses and is committed to offering consultancy services to assist them in navigating the new regulatory landscape. This includes providing real-world examples and case studies to help companies confidently classify their NFTs.
South Korea’s NFT market is poised for growth
The NFT market in South Korea is expected to grow significantly, with NFT spending value expected to increase from $938 million in 2022 to $4 billion by 2028, representing a compound annual growth rate (CAGR ) by 34%.
The country has seen a surge in NFT adoption, with the number of NFT owners growing from 10,000 in 2020 to 760,000 in 2021 and expected to reach 970,000 in 2024 and 1.02 million by 2025, according to the latest data.
Featured image from Getty Images, chart from TradingView