Nfts
South Korea’s FSC issues guidelines for NFTs to be considered virtual assets
South Korea’s Financial Services Commission (FSC) will consider various factors, including issuance and distribution structure as well as service content, to determine the nature of NFTs.
In a significant move ahead of the implementation of the Virtual Asset User Protection Act in mid-July, South Korea’s Financial Services Commission (FSC) announced new guidelines for determining whether tokens non-fungibles (NFTs) are considered virtual assets. The guidelines, revealed on June 10, aim to improve predictability and facilitate enforcement of the new law.
The FSC noted that NFTs, which are unique digital tokens often used to collect content like videos or images, have a limited number of holders and secondary exchanges. This reduces the likelihood of widespread harm to users compared to other virtual assets. Recognizing the unique nature of NFTs, the FSC highlighted the need for regulatory innovation to support the growth of the blockchain industry.
NFTs are generally issued in limited quantities and are not easily interchangeable, unlike cryptocurrencies. The FSC will take into account various factors, including the issuance and distribution structure as well as the content of the service, to determine the nature of NFTs. NFTs issued in large quantities, those that can be split, or those used as direct or indirect means of payment can be classified as virtual assets. Conversely, NFTs with limited economic value or use are less likely to be considered virtual assets.
The FSC emphasized that major countries judge the legal nature of NFTs based on their content rather than their form or technology. For example, the United States Securities and Exchange Commission (SEC) has regulated certain NFTs as securities, applying securities regulations to them. Japan applies financial regulations to NFTs based on their substance and issued NFT guidelines through a private association in 2021. Germany’s BaFin considers NFTs to be securities if they have similar rights and are transferable , or as virtual assets if used for payment or investment purposes.
Jeon Yo-seop, head of the Financial Innovation Planning Division, spoke to reporters in the morning of the same day, saying: “NFT transactions cannot be uniformly regulated as virtual assets, but occasional transactions will not be subject to such regulation. This approach aims to avoid excessive regulation and align with the policy objective of promoting NFTs.
The FSC also outlined the responsibilities of companies dealing with NFTs, requiring them to determine whether their NFTs are virtual assets and comply with applicable laws. This measure aims to guarantee compliance with the law and avoid criminal sanctions. Future NFT issuers and managers are advised to review the legal nature of their NFTs in advance to ensure compliance with government positions and related laws.
To help companies struggling with self-assessment, the FSC will authorize inquiries to financial authorities and plans to set up a related task force. This support aims to help businesses determine the virtual asset status of NFTs and effectively navigate the regulatory landscape.
“Since the “Virtual Asset User Protection Act” is being implemented for the first time this year, we have prepared these guidelines to provide clear criteria for determining whether NFTs are virtual assets, improving thus the predictability of the law and facilitating its application,” said the FSC.
Understanding the context of these guidelines requires knowledge of NFTs, blockchain technology, and the global regulatory environment. NFTs are unique digital assets verified using blockchain technology, often representing ownership of digital or physical objects. Blockchain is a decentralized digital ledger that guarantees the security and authenticity of transactions. Virtual assets, including cryptocurrencies, are digital representations of value that can be exchanged or transferred electronically, and governments around the world are increasingly focused on regulating these assets to protect users and prevent fraud.
South Korea has been proactive in regulating the cryptocurrency market, and the introduction of the Virtual Asset User Protection Law reflects the government’s efforts to create a legal framework to protect users and ensure security. financial stability. Different countries have different approaches to regulating NFTs, with the United States, Japan and Germany providing frameworks based on the usage and characteristics of NFTs.