NFTs for Mass Issuance to be Classified as Virtual Assets in South Korea

CryptoNews.com

2024-06-09 21:43:09

Jai Pratap

Last updated:

June 10, 2024 01:43 EDT | 1 min read

With the ‘Virtual Asset User Protection Act‘ set to take effect on July 19, the Financial Services Commission (FSC) has issued new guidelines detailing when non-fungible tokens (NFTs) should be considered virtual assets.

Under the new guidelines, general NFTs traded for content collection purposes will remain outside the scope of virtual assets. However, NFTs exhibiting characteristics akin to virtual assets will be subject to the same regulations. Businesses issuing such NFTs must report their operations to authorities as virtual asset businesses, local outlet News1 reported earlier today.

What Qualifies NFT As Virtual Asset?

Key criteria for NFTs to be classified as virtual assets include mass issuance, divisibility, and usage as a payment means. Specifically, NFTs issued in large quantities or series, thus diminishing their uniqueness, will fall under the virtual asset category.

The FSC highlighted that this classification targets NFTs where the primary intent is market profit rather than collection.

Divisible NFTs, or those that can be broken into smaller units, also lose their uniqueness and thus qualify as virtual assets.

Moreover, NFTs used directly or indirectly as a means of payment for goods or services, or exchanged between unspecified persons, are considered virtual assets.

The FSC underscored that NFTs issued solely for the purpose of being exchanged for another virtual asset would be classified as virtual assets. This does not apply to NFTs purchased with virtual assets on marketplaces.

Businesses Dealing with NFTs Must Comply With the ‘Specific Financial Information Act’

Jeon Yo-seop, head of the Financial Innovation Planning Division at the FSC, explained that these measures are intended to prevent the misuse of NFTs as exchange notes to circumvent virtual asset regulations.

He emphasized that the FSC will judge the nature of NFTs strictly, without broad interpretations that could dilute regulatory effectiveness.

Businesses handling NFTs must scrutinize these guidelines to determine if their NFTs qualify as virtual assets. If they do, businesses must comply with the ‘Specific Financial Information Act,’ which covers the sale, exchange, transfer, storage, and brokerage of virtual assets. Failure to report as a virtual asset business operator could result in criminal penalties.

For businesses uncertain about their NFTs’ classification, the FSC offers consultation services. Jeon noted that the Commission will provide examples and case judgments to assist businesses in navigating these new regulations.

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