Key Takeaways
- Under the new regulations, NFTs that are divisible, mass-produced, and can be used as payment will be considered as virtual assets.
- The rules state that NFTs could be treated as a security if they showcase features mentioned in the country’s Capital Markets Act.
South Korea’s financial regulator, the Financial Services Commission (FSC), has issued guidelines to clarify how non-fungible tokens (NFTs) will be regulated under the country’s upcoming crypto laws.
The new guidelines differentiate between various types of NFTs. NFTs with characteristics similar to crypto, such as mass-produced, interchangeable tokens used for payments, will be subject to the same regulations as that of virtual assets. This distinction applies to collections with a large number of NFTs (around one million according to the FSC), which could potentially function like cryptocurrencies.
Under the new regulations, unique NFTs which possess little to no economic value, such as those used for concert tickets or digital certificates, will not be considered virtual assets under the new regulations.
The FSC emphasizes that each case will be reviewed individually, and there is no single standard for classifying NFTs as cryptocurrencies. Additionally, NFTs with features which are more in tune with the country’s Capital Markets Act could also be categorized as securities.
These guidelines come ahead of South Korea’s new Virtual Asset User Protection Act, which takes effect on July 19, 2024. This legislation aims to combat illegal activities in the crypto space, such as market manipulation and fraud. Penalties for those convicted include a minimum of one year in prison, or a fine of three to five times the amount of profits earned from such violations.
Virtual Asset User Protection Act defines “virtual assets” as an “electronic representation of an economic value that can be traded or transferred electronically.” The act further mandates crypto service providers to hold a significant portion of user deposits in secure cold storage and participate in insurance schemes to protect users in case of security breaches or exploits.
The latest development also comes amid reports that South Korea was ranked eighth globally in terms of crypto profits in 2023. The country bagged the eighth position with a total of $1.04 billion in crypto gains last year.
