South Korea has introduced a new law forcing issuers of non-fungible tokens (NFTs) to register as virtual asset operators. The rule targets NFTs with unique characteristics such as large-scale issuance, divisibility and their role in transactions. Initially, NFTs were not labeled as virtual assets Enforcement Order of the Virtual Asset User Protection Act. But now, those with specified attributes will be classified.
Financial Services Commission Guidelines
July 10, financial services committee Published guidance outlining NFT classification criteria. NFTs obtained for content collection purposes will not be classified as virtual assets. However, NFTs with unclear characteristics will be evaluated, first as securities and then as virtual assets.
When determining whether NFTs qualify as securities, the FSC referred to the Token Securities Guidelines launched by the financial authority in February of the previous year. If the rights acquired by investors meet the standards of securities under the Capital Markets Law, NFTs will be subject to securities regulation regardless of their technology or structure.
Virtual Asset Classification Standard
In order to classify NFTs as virtual assets, the FSC considers a variety of factors:
- Large-scale issuance or high fungibility.
- Divisibility allows NFTs to be divided into smaller units.
- Used as a direct or indirect method of payment for goods or services.
- The exchange of virtual assets between unspecified individuals or the use of other virtual assets to pay for goods or services.
Mass issuance refers to a scenario where a large number of identical or similar NFTs are produced, making it difficult to distinguish their uniqueness, which is the defining characteristic of NFTs. Such NFTs are mainly used to make profits in the market and are classified as virtual assets. The FSC did not specify a specific number to prevent regulatory exploitation.
Divisible NFTs can be divided into fractional units, losing their uniqueness and therefore subject to virtual asset regulation. If an NFT is specifically intended to be exchanged for other virtual assets, it falls into the virtual asset category. However, this does not include purchasing NFTs with virtual assets on the market platform.
Issuer reporting obligations
Under the new standards, entities involved in NFT transactions must determine whether their NFTs are virtual assets and report their operations as virtual asset businesses. This requires compliance with Article 2, paragraph 1, of the Specific Financial Information Law, covering various activities such as the sale, exchange, transfer, storage and brokerage of NFTs.
Virtual asset business operators who fail to comply with reporting requirements will be subject to criminal penalties. To assist businesses that are unsure about the virtual asset status of their NFTs, the FSC encourages them to seek clarification from the authorities. Jeon Yo-seop, head of the FSC’s Financial Innovation Planning Department, emphasized that the commission is ready to provide assistance, saying: “If individual business owners find it difficult to determine independently, they can contact the Financial Services Commission. We will also provide assistance for specific cases in the future. Decision making examples.
