South Korea’s top financial regulator has issued guidelines clarifying when non-fungible tokens (NFTs) are considered virtual assets. This distinction aims to minimize the risk of widespread user harm. The guidelines will be part of the Virtual Asset User Protection Act, effective July 19, 2024.
FSC Issues New NFT Classification Guidelines
On Monday, South Korea’s top financial regulator, the Financial Services Commission (FSC), released detailed guidelines clarifying when non-fungible tokens (NFTs) are considered virtual assets.
The FSC explained that NFTs are issued in limited quantities and traded primarily for collecting content such as videos and images. As a result, they are typically held by a small number of individuals with restricted secondary market transactions. These characteristics lead the regulator to view the risk of widespread user harm as minimal, distinguishing NFTs from other virtual assets.
According to the FSC, NFTs are excluded from being classified as virtual assets under the Enforcement Decree if they are mainly intended for collection, facilitate transactions between parties, or are unique and irreplaceable. Examples of such NFTs include proof of authenticity tokens in the art market, property transaction records, and supply chain verification tokens. However, the FSC noted that if an NFT effectively functions as a virtual asset, the provisions of the “Virtual Asset User Protection Act” and other relevant regulations will apply.
The FSC enacted the Enforcement Decree to specify the details of the Virtual Asset User Protection Act, promulgated on July 18, 2023, and scheduled to take effect on July 19, 2024. The act aims to safeguard virtual asset users and establish market order. Key measures include defining virtual assets, requiring safe storage of users’ deposits and virtual assets, and imposing penalties for unfair trading practices. The enforcement decree details exclusions from the virtual asset category, management of user deposits, mandatory use of cold wallets for asset storage, and insurance or reserve requirements for incident liability.
The FSC emphasized that the legal classification of NFTs must be judged on a case-by-case basis, considering the substance rather than the name or technology. Factors such as issuance and distribution structure, terms and conditions, advertising, and business and service contents should be thoroughly evaluated by those intending to issue, distribute, or handle NFTs.
Source: Bitcoin
