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The FSC South Korea: New NFT Guidelines on Specific Traits

South Korea’s Financial Services Commission (FSC) has introduced new guidelines for NFTs (Non-Fungible Tokens). These guidelines aim to clarify whether NFTs are considered virtual assets under the “Virtual Asset User Protection Act.” The changes will take effect next month. This move seeks to reduce confusion about NFTs and their regulation.

South Korea's Financial Services Commission (FSC) logo
Source: https://www.wired.com/story/nfts-dont-work-the-way-you-think-they-do/

Key Points of the FSC South Korea New NFT Guidelines: 

1. Review on a Case-by-Case Basis 

  • FSC could treat over 1 million NFTs as cryptocurrencies.  
  • They will review each case separately to determine its classification.

2. Classification as Virtual Assets

  • The FSC will first check if NFTs are securities under the Capital Markets Act. 
  • If not securities, they will be evaluated under the Virtual Asset User Protection Act. 
  • NFTs that they recognize as virtual assets will be subject to the Virtual Asset User Protection Act and the Specific Financial Information Act. 

3Characteristics of NFTs 

  • NFTs have unique information and are irreplaceable. 
  • Typically issued in limited quantities, mainly for collecting content like videos and images. 
  • Limited number of holders and secondary transactions. 

4. Exclusion from Virtual Assets 

  • NFTs are seen as less likely to cause harm to multiple users. 
  • Will be excluded from the Virtual Asset User Protection Act taking effect on the 19th of next month. 

5. Conditions for Virtual Asset Classification 

  • Issued in large quantities, undermining uniqueness and non-fungibility. 
  • High possibility of replacement or divisibility. 
  • Used as a direct or indirect payment method. 
  • Can be exchanged for virtual assets or used for payments related to virtual assets. 

Specific Conditions 

Here are the specific conditions that might classify NFTs as virtual assets: 

Condition 

Description 

Large Issuance 

Issued in large or extensive series, making them replaceable. 

High Divisibility 

Can be divided, significantly weakening their uniqueness. 

Payment Method 

Used directly or indirectly to pay for specific goods or services. 

Exchange for Virtual Assets 

Can be exchanged for virtual assets or used in connection with them. 

 

The FSC South Korea Statement 

Jeon Yo-Seop, head of the Financial Innovation Planning Division, explained that issuing around 1 million NFTs could lead to people frequently trading them and using them for payment purposes. This usage would give NFTs purposes different from the usual collection. 

No Specific Issuance Criteria 

  • The FSC will not set a specific issuance amount as a judgment criterion. 
  • They will consider each case individually, examining the specific circumstances. 

Jeon clarified that the FSC will not classify all NFTs exchanged a few times as virtual assets. However, if people widely exchange NFTs and use them as payment methods, the FSC might classify them as virtual assets. 

The FSC South Korea Regulatory Implications 

If the FSC recognizes NFTs as virtual assets, businesses must comply with virtual asset-related laws, including the Virtual Asset User Protection Act and the Specific Financial Information Act. Businesses can form a judgment committee to seek interpretation from financial authorities if uncertain. 

Practical Examples 

  • Significant Economic Value: NFTs used for substantial economic functions may be seen as virtual assets. 
  • General NFTs: NFTs with minor economic value, or those used as receipts or exhibition tickets, are not considered virtual assets. 

The FSC emphasizes that businesses should prepare for these guidelines, although there have been no specific inquiries about virtual asset classification yet. The regulatory framework aims to ensure clarity and protect users while fostering innovation in the blockchain industry.

June 10, 2024 at 8:00 pm

Updated June 10, 2024 at 8:00 pm

Disclaimer

Remember, investing in cryptocurrencies involves risks, and it’s important to conduct thorough research and seek professional advice before making any financial decisions. (Please keep in mind that this post is solely for informative purposes and should not be construed as financial or investment advice.)

FAQ

NFTs are unique digital assets stored on blockchains, representing various digital items.

To create a unique NFT, you mint it by uploading a digital file to a blockchain platform.

NFTs can be a good investment for collectors, but research and understanding risks are essential.

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