South Korea’s Financial Services Commission (FSC) has released new guidelines clarifying when non-fungible tokens (NFTs) should be classified as virtual assets.
According to reports from local media on June 10, the FSC will regulate certain NFTs similarly to cryptocurrencies if they exhibit specific characteristics.
NFTs are digital tokens characterized by unique and irreplaceable information. They are typically issued in limited quantities and primarily traded as collectible items, such as videos and images. Due to their limited issuance and specialized purpose, the number of NFT holders is small, and secondary transactions are infrequent.
According to the FSC’s new guidelines, NFTs, which are mass-produced, divisible, and can be used for payments, will be categorized as virtual assets. While, NFTs with minimal value or used for purposes like ticketing or digital certificates will be considered general NFTs and treated differently.
Jeon Yo-seop, the head of Financial Innovation Planning at the FSC, reportedly mentioned that NFT collections with large quantities could be used as payment methods. He noted that issuing a collection of one million NFTs could lead to significant transaction volumes, making them viable for use as payment.
The new guidelines reportedly indicate that NFTs could be classified as securities if they possess features outlined in the country’s Capital Markets Act.
The FSC also highlighted that while regular NFTs and central bank digital currencies (CBDCs) are excluded from these guidelines, there are exceptions. For instance, NFTs are classified as virtual assets if they can earn interest, especially when deposited on exchanges.
Despite these guidelines, the FSC emphasized that each NFT collection would be assessed individually. There is no fixed standard for interpreting NFTs as virtual assets.
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The new rules are part of broader preparations for new virtual asset regulations set to take effect in July 2024 in the country. These guidelines are part of a series released by the regulator to interpret the new laws and to guide stakeholders on their application. Notably, in December 2023, the FSC released two guidelines for enforcing the new regulations — the “Enforcement Decree of the VAUPA” and the “Virtual Asset Industry Supervision Regulations.”
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