South Korea’s FSC Clarifies Regulations on NFTs as Virtual Assets

South Korea’s FSC Clarifies Regulations on NFTs as Virtual Assets

South Korea’s Financial Services Commission (FSC) has issued new guidelines to clarify when non-fungible tokens (NFTs) can be considered virtual assets. According to a report by local media outlet News1 on June 10, the FSC will regulate NFTs similarly to cryptocurrencies if they lack distinguishing characteristics from virtual assets.

The FSC stipulates that NFTs which are mass-produced, divisible, and capable of being used for payments will be classified as virtual assets. These mass-produced NFTs could potentially serve as a payment method.

Conversely, NFTs with negligible value, such as those used for ticketing or as digital certificates, will be categorized as general NFTs and treated differently. Jeon Yo-seop, head of the FSC’s Financial Innovation Planning, indicated that high-volume NFT collections are likely to be used for payments. He emphasized that large quantities of NFTs in a collection could lead to numerous transactions, thereby making them suitable as a payment method.

Despite these guidelines, the FSC will review NFT collections on a case-by-case basis, ensuring there is no absolute standard for interpreting NFTs as cryptocurrencies. Moreover, the guidelines suggest that NFTs could be treated as securities if they exhibit features outlined in the country’s Capital Markets Act.

In anticipation of new virtual asset regulations set to take effect in July 2024, the FSC has provided various guidelines to assist stakeholders in understanding the country’s legal framework. Notably, in 2023, the FSC announced that by July, virtual assets deposited into crypto exchanges must earn interest. However, this requirement does not apply to regular NFTs and central bank digital currencies (CBDCs).

The recent update reaffirms that NFTs classified as virtual assets, particularly those used for payments and issued in large quantities, are eligible to earn interest when deposited on exchanges.