Regulation
South Korea will classify some NFTs as virtual assets ahead of new cryptocurrency regulations
South Korea’s Financial Services Commission (FSC) is changing its stance on non-fungible tokens (NFTs), seeking to classify some as virtual assets.
NFTs they are primarily unique assets that cannot be replicated, the traits that differentiate them from cryptocurrencies would be treated as virtual assets, a This was revealed in the June 10 report by South Korea’s FSC.
Specifically, the report that NFTs are divisible, can be mass produced, or used as a means of payment, all of which are now classified in South Korea’s latest regulatory framework.
Companies issuing NFTs classified as virtual assets are now required to report it to the South Korean regulator.
The new directive comes forward the nation’s first crypto regulatory framework whose implementation is scheduled for July 19th.
According to Jeon Yo-seop, head of financial innovation planning at the FSC, NFT collections minted in large quantities are more likely to be used as payment.
For example, the the official said that if a million NFTs were issued in a pool, they could be traded and used as payments, just like cryptocurrencies.
He suggested that there would be no single standard for classifying NFTs as virtual assets. Rather, the FSC will make the distinction through a case-by-case review approach.
Furthermore, if an NFT possesses financial security features as specified in the country’s Capital Markets Act, it can be classified as a security.
With the implementation of the new guidelines, some NFTs may even be eligible to receive interest if deposited on an exchange. This is for a FSC noticeissued late last year, mandating that virtual assets deposited on cryptocurrency exchanges be 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 called the Virtual Asset User Protection Act. The rule, which comes into force a week later, aims to criminalize illicit practices such as using confidential information for cryptocurrency investments, manipulating market prices and involvement in fraudulent transactions.
The bill it was approved in 2023 by the nation’s National Assembly. Cryptocurrency-focused entities were subsequently given a one-year grace period to comply with the regulations.
To complement these efforts, South Korean regulators have also launched a Cryptographic Crimes Unit. Nicknamed the Joint Investigation Unit on Crimes Related to Virtual Assetsthe entity included 30 experts from seven national agencies.