South Korea's Financial Services Commission (FSC) has revealed a new regulatory framework for non-fungible tokens (nft). The guidelines, released ahead of the upcoming Virtual Asset User Protection Law that goes into effect on July 19, 2024, aim to bring clarity and structure to the burgeoning nft market, while protecting investors and encouraging responsible innovation.
Fungibility takes center stage
The core of the FSC approach revolves around the concept of nft-non-fungible-token/” target=”_blank” rel=”noopener nofollow”>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 regulations similar to cryptocurrencies.
In a thought-provoking interview, Jeon Yo-seop, the architect behind financial innovation at FSC, hinted at a mind-blowing possibility: a digital vault packed with 1 million nfts, functioning not just as collectibles but as currency itself.
However, the FSC, ever the cautious guardian, emphasized that each collection of nfts will be analyzed as a unique fingerprint, with no one-size-fits-all approach to classifying them as crypto.
A spectrum of nft regulation
The FSC recognizes the various 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 characteristics described in South Korea's Capital Markets Law. This nuanced approach ensures that regulations adapt to the changing nature of nfts within the digital landscape.
Companies beware: compliance is key
nft companies in South Korea are advised to carefully examine the FSC guidelines to determine whether their offerings qualify as virtual assets. Companies that trade this type of nft must comply with the Specific Financial Reporting Law, 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 companies and has committed to offering consultation services to help them navigate 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 Set to Grow
The nft market in South Korea is expected to grow significantly, with the value of nft spending projected to increase from $938 million in 2022 to $4 billion in 2028, representing a compound annual growth rate. (CAGR) of 34%.
The country has seen a surge in nft adoption: the number of nft owners increased from 10,000 in 2020 to 760,000 in 2021 and is projected to reach 970,000 in 2024 and 1.02 million in 2025, according to the latest data.
Featured image from Getty Images, chart from TradingView
