Nfts
NFTs now subject to regulation
South Korea’s Financial Services Commission (FSC) revealed a new regulatory framework for non-fungible tokens (NFT). The guidelines, released ahead of the upcoming Virtual Asset User Protection Act which takes effect on July 19, 2024, aim to bring clarity and structure to the booming NFT market while protecting investors and by promoting responsible innovation.
Fungibility takes center stage
The heart of the FSC approach is based on the concept of fungibility – the ability of an NFT to be exchanged for another identical NFT. NFTs that are mass-produced, divisible, and function primarily as a means of payment will be classified as virtual assets and subject to regulations similar to cryptocurrencies.
In a thought-provoking interview, Jeon Yo-seop, the architect behind financial innovation at FSC, hinted at a mind-blowing possibility: a digital vault overflowing with a million NFTs, functioning not only as collectibles but as currency itself!
However, the ever-cautious FSC emphasized that each collection of NFTs will be examined as a unique fingerprint, with no one-size-fits-all approach to classifying them as crypto.
A spectrum of NFT regulation
The FSC recognizes the diverse applications of NFTs. Unique, non-divisible NFTs with minimal monetary value, such as those used for concert tickets or digital certificates, will likely be categorized as “general NFTs” and exempt from stricter regulations.
The guidelines also allow NFTs to be classified as securities if they have the characteristics outlined in South Korea’s Capital Markets Law. This nuanced approach ensures that regulations adapt to the evolving nature of NFTs in the digital landscape.
Business Attention: Compliance is Key
NFT businesses in South Korea are advised to carefully review the FSC guidelines to determine whether their offerings qualify as virtual assets. Companies trading such NFTs will need to comply with the specific Financial Reporting Law, which governs the sale, exchange, transfer, storage and brokerage of virtual assets.
Failure to comply with these regulations could result in heavy fines and even criminal sanctions. The FSC recognizes the potential complexities for businesses and is committed to offering consulting services to help them navigate the new regulatory landscape. This includes providing real-world examples and case studies to help businesses classify their NFTs with confidence.
South Korea’s NFT Market Poised for Growth
The NFT market in South Korea is expected to see significant growth, with the value of NFT spending expected to increase from $938 million in 2022 to $4 billion by 2028, representing a compound annual growth rate (CAGR ) by 34%.
The country has seen a surge in NFT adoption, with the number of NFT owners increasing from 10,000 in 2020 to 760,000 in 2021 and expected to reach 970,000 in 2024 and 1.02 million by 2025, according to latest data.
Featured image from Getty Images, chart from TradingView