South Korea’s Financial Services Commission (FSC) has shifted its position on nonfungible tokens (NFTs) and is now considering categorizing some of them as virtual assets.
NFTs are unique assets that cannot be duplicated, distinguishing them from cryptocurrencies, as stated in a report by South Korea’s FSC on June 10.
The report specifies that NFTs that are divisible, can be mass-produced, or used for payment will now fall under South Korea’s latest regulatory framework.
Businesses issuing NFTs classified as virtual assets must now report to the South Korean watchdog.
This update comes ahead of the country’s inaugural crypto regulatory framework, scheduled to be enforced on July 19.
According to Jeon Yo-seop, head of Financial Innovation Planning at the FSC, NFT collections minted in large quantities are likely to be utilized for payments.
For instance, if a collection of one million NFTs is issued, they could be traded and used as a form of payment, similar to cryptocurrencies.
Yo-seop mentioned that there will be no single standard for classifying NFTs as virtual assets. Instead, the FSC will assess each case individually.
Additionally, NFTs that exhibit characteristics of financial securities outlined in the Capital Markets Act may be classified as securities.
With the implementation of the new guidelines, some NFTs may also qualify for interest when deposited on an exchange, as per a notice from the FSC issued late last year.
However, regular NFTs and central bank digital currencies (CBDCs) are exempt from this incentive.
The new framework is part of the Virtual Asset User Protection Act in South Korea’s crypto legislation, which aims to criminalize illicit practices in the crypto industry.
Passed by the National Assembly in 2023, cryptocurrency-related entities were granted a one-year grace period to comply with the regulations.
In addition to these measures, South Korean regulators have established a specialized unit to combat crypto-related crimes. The Joint Virtual Asset Crime Investigation Unit consists of 30 experts from seven national agencies.
For more information, South Korea’s Ministry of Justice has formed a task force to combat crypto crimes.