South Korea to categorize certain NFTs as Virtual Assets in preparation for upcoming crypto regulations
South Korea’s Financial Services Commission (FSC) is shifting its position on nonfungible tokens (NFTs) and is now considering classifying some of them as Virtual assets, according to a report released on June 10.
NFTs are unique assets that cannot be duplicated, distinguishing them from cryptocurrencies. The FSC’s latest framework now categorizes NFTs that are divisible, mass-produced, or used as a form of payment as virtual assets.
Businesses issuing NFTs classified as virtual assets must now report this to the South Korean watchdog. This change comes ahead of the nation’s first crypto regulatory framework scheduled to take effect on July 19.
Jeon Yo-seop, the Financial Innovation Planning head at FSC, mentioned that NFT collections produced in large quantities are likely to be utilized for payments. For instance, if a collection includes one million NFTs, they can be traded and used for payments like cryptocurrencies.
The FSC will assess NFTs on a case-by-case basis to determine if they qualify as virtual assets, rather than implementing a single standard. NFTs exhibiting characteristics of financial securities outlined in the country’s Capital Markets Act may be classified as securities.
Under the new guidelines, some NFTs could earn interest when deposited on an exchange, as per a notice from the FSC issued last year. However, regular NFTs and CBDCs are excluded from this provision.
The new framework is part of South Korea’s Virtual Asset User Protection Act, which aims to criminalize illicit practices in the crypto industry, such as market manipulation and fraudulent transactions. The bill was passed by the National Assembly in 2023, and cryptocurrency-related entities were given a one-year grace period to comply.
In addition, South Korean regulators have established a crypto crimes unit called the Joint Virtual Asset Crime Investigation Unit, consisting of 30 experts from seven national agencies to combat crypto-related crimes.
