South Korea issues guidelines to classify NFTs as virtual assets

The Financial Services Commission (FSC), South Korea's financial watchdog, has issued guidelines detailing when non-fungible tokens (nfts) should be considered virtual assets. The country is preparing to implement the 'Virtual Asset User Protection Law' before July 19 of this year.

Under the new guidelines, nfts that are mass produced, divisible, and can be used as a means of payment will be regulated similarly to cryptocurrencies. The FSC believes that nft collections with large amounts have a higher probability of being used as payment, especially if there are a large number of transactions.

Jeon Yo-seop, head of FSC's Financial Innovation Planning Division, said in an interview that if an nft collection consists of 1 million nfts, it is likely that they can be used as a payment method. However, the FSC noted that it will distinguish collections through a case-by-case review, meaning there will be no absolute standard for interpreting nfts as cryptocurrencies.

nfts that have little or no value, such as those used in ticketing or digital certificates, will be treated differently and classified as general nfts. The guidelines also suggest that nfts could be treated as securities if they exhibit characteristics specified in South Korea's Capital Markets Law.

The FSC previously mentioned that virtual assets must receive interest when deposited on a crypto exchange as part of the new rules for virtual assets that will come into effect in July 2024. While regular nfts and central bank digital currencies ( CBDC) are excluded from this requirement, The new FSC update reiterates that nfts classified as virtual assets can receive interest once they are deposited on exchanges.

Companies that handle nfts should review the guidelines to determine if their nfts qualify as virtual assets. If so, they must comply with the 'Specific Financial Information Law', which covers the sale, exchange, transfer, storage and brokerage of virtual assets. Failure to declare yourself as a virtual asset business operator could result in criminal sanctions.

The FSC offers consultation services for companies that are unsure about the classification of their nfts and will provide examples and case judgments to help companies navigate these new regulations.