South Korea Regulating Top NFT Collections as Virtual Assets

Updated June 12, 2024 2 min read

South Korea Regulating Top NFT Collections as Virtual Assets

South Korea Regulating Top NFT Collections as Virtual Assets

South Korea Regulating Top NFT Collections as Virtual Assets

South Korea's Financial Services Commission (FSC) has issued new guidelines to regulate non-fungible tokens (NFTs) as virtual assets under certain conditions, providing much-needed clarity in the rapidly evolving crypto and digital asset space. The move comes ahead of the nation's first comprehensive crypto regulatory framework, the Virtual Asset User Protection Act, set to be implemented on July 19, 2024.

Mass-Produced and Exchangeable NFTs to be Treated as Cryptocurrencies

Under the new regulations, the FSC will classify NFTs as virtual assets if they are mass-produced, divisible, and can be used as a means of payment or exchange. This nuanced approach aims to ensure that NFTs used in a manner similar to cryptocurrencies are subject to the same regulatory scrutiny. However, NFTs that remain unique, possess little to no economic value, or serve specific purposes such as ticketing or digital certificates will retain their classification as general NFTs.

The FSC emphasized that the classification of NFTs will be determined on a case-by-case basis, allowing the regulator to adapt to the dynamic digital asset landscape. Furthermore, the guidelines suggest that NFTs could be classified as securities if they meet the criteria outlined in South Korea's Capital Markets Act.

Virtual Asset NFTs Eligible for Interest on Exchange Deposits

In a previous notice issued last year, the FSC mandated that virtual assets deposited on crypto exchanges would be eligible to receive interest. The new update reiterates that NFTs classified as virtual assets can also receive interest once deposited on exchanges, while regular NFTs and central bank digital currencies (CBDCs) remain excluded from this benefit.

Implications for the NFT Market and Stakeholders

The FSC's new guidelines represent a significant step towards regulating the burgeoning NFT market in South Korea, aiming to balance innovation with investor protection. The potential classification of certain NFTs as virtual assets may lead to a rise in their prices due to their newfound regulated status. However, businesses issuing NFTs that fall under the virtual asset category will be obliged to report to the FSC and may face stricter regulatory requirements.

South Korea's Evolving Crypto Regulatory Landscape

South Korea has been actively working on establishing a comprehensive regulatory framework for cryptocurrencies and digital assets. In addition to the upcoming Virtual Asset User Protection Act, the country has also launched a Joint Virtual Asset Crime Investigation Unit to combat crypto-related crimes.

The FSC's decision to consult with U.S. Securities and Exchange Commission Chair Gary Gensler regarding the classification of NFTs and the approval of spot bitcoin exchange-traded funds (ETFs) further highlights South Korea's commitment to developing a robust and informed regulatory approach.

As South Korea continues to navigate the complex landscape of crypto and NFT regulation, market participants and investors will need to stay informed about the evolving guidelines and their potential impact on the industry. The FSC's case-by-case approach to classifying NFTs as virtual assets demonstrates the regulator's efforts to strike a balance between fostering innovation and protecting investors in the fast-paced world of digital assets.