South Korea’s Financial Services Commission (FSC) is updating its approach to nonfungible tokens (NFTs) by classifying some of them as virtual assets. According to a report released on June 10, the FSC highlighted that NFTs, despite their unique and irreplicable nature, would be treated as virtual assets under certain conditions. Specifically, NFTs that are divisible, produced in large quantities, or used as a means of payment will now fall under South Korea’s newest regulatory framework.
Businesses issuing NFTs that meet these criteria must report their operations to the South Korean regulatory authorities. This change precedes the implementation of the nation’s first comprehensive crypto regulatory framework, set to take effect on July 19.
Jeon Yo-seop, head of the FSC’s Financial Innovation Planning division, explained that large-scale NFT collections, especially those minted in significant quantities, are likely to be used as payment. He cited an example where a collection of one million NFTs could be traded and used similarly to cryptocurrencies.
The FSC will not apply a single standard to classify NFTs as virtual assets. Instead, each case will be reviewed individually to determine its classification. Additionally, if an NFT possesses characteristics akin to financial securities as defined by the Capital Markets Act, it may be classified as a security.
The new guidelines also indicate that some NFTs may be eligible to earn interest when deposited on an exchange. This aligns with a notice from the FSC issued late last year, which mandates that virtual assets deposited on crypto exchanges should be eligible for interest generation. However, regular NFTs and Central Bank Digital Currencies (CBDCs) are excluded from this benefit.
This new framework is part of South Korea’s broader crypto legislation, known as the Virtual Asset User Protection Act. Set to be enforced a week after the new NFT guidelines, this legislation aims to criminalize practices such as using undisclosed information for crypto investments, manipulating market prices, and engaging in fraudulent transactions. Passed by the National Assembly in 2023, the bill granted cryptocurrency-focused entities a one-year grace period to comply with the new regulations.
To support these efforts, South Korean regulators have also established a dedicated crypto crimes unit. Named the Joint Virtual Asset Crime Investigation Unit, it consists of 30 experts from seven national agencies, tasked with tackling crypto-related criminal activities.
