South Korea to Classify Mass-Issued NFTs as Virtual Assets

South Korea to Classify Mass-Issued NFTs as Virtual Assets

The Financial Services Commission (FSC) of South Korea has announced new guidelines that classify certain non-fungible tokens (NFTs) as virtual assets under the upcoming Virtual Asset User Protection Act, set to take effect on July 19, 2024. According to the FSC, NFTs that are mass-produced, divisible, and used as a means of payment will fall under the virtual asset category. These guidelines aim to provide regulatory clarity and ensure consumer protection in the rapidly evolving digital asset market.

The FSC's approach differentiates between NFTs based on their characteristics and use cases. General NFTs issued in limited quantities and primarily traded as collectibles will not be classified as virtual assets. However, NFTs that are issued in large quantities, can be divided into smaller units, or are used for payment purposes will be subject to virtual asset regulations. Additionally, NFTs that function as a kind of virtual asset in substance, despite their form, will also be regulated accordingly.

Businesses dealing with NFTs that qualify as virtual assets will be required to comply with the 'Specific Financial Information Act,' which includes obligations related to the sale, exchange, transfer, storage, and brokerage of virtual assets. This regulatory framework is designed to prevent misuse of NFTs for illicit activities and ensure transparency in the digital asset market. The FSC also indicated that NFTs with features similar to financial securities might be classified under the country's Capital Markets Act, further broadening the regulatory scope.

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