Regulation
South Korea to unveil strict rules for digital assets – that’s all
The impending promulgation of Korea’s Virtual Asset User Protection Act heralds a significant shift in regulatory oversight in South Korea’s digital asset landscape. This legislation aims to impose stringent regulations on companies engaged in issuing non-fungible tokens (NFTs) classified as virtual goods.
By specifically targeting NFTs with characteristics such as broad issuance, divisibility, and utility as a means of payment, the law aims to improve oversight and protection in the thriving NFT market. By requiring businesses to report their operations to regulators, 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 on 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 scope of virtual assets, those that exhibit characteristics of securities or that serve as a means of payment fall under regulatory scrutiny. The guidelines establish various parameters, including issuance size, divisibility and transactional utility, to determine the virtual asset status of NFTs. Additionally, the law requires operators issuing NFTs that meet the virtual asset criteria to report their activities regulatory authorities
ensuring compliance with the regulatory framework.
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Compliance and reporting obligations for NFT operators
As comprehensive guidelines are issued, operators engaged in the distribution and management of NFTs face a crucial moment in regulatory compliance. The first step involves a thorough evaluation to ascertain whether the NFTs in question meet the criteria for classification as virtual assets.
If an NFT falls under this designation, traders must examine their business activities to determine whether they involve trading, exchanging, transferring, storing, brokering, or brokering NFT transactions, as outlined in the Specific Financial Information Act. Failure to report such activities as virtual asset transactions may incur criminal sanctions. Traders who experience ambiguity regarding the classification of NFTs are encouraged to seek assistance from financial authorities, with future examples clarifying the judging criteria for individual cases.
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