South Korea’s FSC Classifies Certain NFTs as Virtual Assets Prior to New Crypto Regulations

South Korea’s Financial Services Commission (FSC) has announced a shift in its stance towards nonfungible tokens (NFTs), aiming to classify certain types of NFTs as virtual assets.

In a report released on June 10, the FSC outlined that NFTs possessing traits such as divisibility, mass production, or usability as a means of payment would fall under South Korea’s latest framework for virtual assets.

This change in classification mandates businesses issuing NFTs categorized as virtual assets to report to the South Korean watchdog. The adjustment arrives ahead of the impending implementation of the nation’s inaugural crypto regulatory framework on July 19.

Jeon Yo-seop, Head of Financial Innovation Planning at the FSC, highlighted that NFT collections produced in large quantities are likely to be utilized as a form of payment. He cited an example where a collection consisting of one million NFTs could potentially be traded and used as currency, like cryptocurrencies. However, the FSC clarified that there won’t be a uniform standard for classifying NFTs as virtual assets, opting instead for a case-by-case review approach.

Moreover, NFTs displaying characteristics similar to financial securities outlined in South Korea’s Capital Markets Act may be designated as such. This nuanced approach highlights the FSC’s commitment to tailored regulation, ensuring appropriate classification based on individual NFT attributes.

In a bid to enhance consumer protection and regulatory compliance, the FSC has also introduced guidelines stipulating that NFTs classified as virtual assets may be eligible to accrue interest when deposited on cryptocurrency exchanges. While this initiative aligns with the forthcoming Virtual Asset User Protection Act, it excludes regular NFTs and central bank digital currencies (CBDCs) from interest generation benefits.

This move signifies South Korea’s proactive steps towards enhancing oversight and regulation in the crypto space, aiming to prevent malpractices and safeguard investor interests.

With the regulatory landscape ready for transformation, stakeholders are preparing to navigate the evolving regulatory framework, underpinned by increased transparency and accountability.