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NFTs for Mass Issuance to be Classified as Virtual Assets in South Korea

Scheduled for implementation on July 19, the ‘Virtual Asset User Protection Act’ prompts the Financial Services Commission (FSC) to unveil fresh directives outlining the criteria for classifying non-fungible tokens (NFTs) as virtual assets.

According to the updated guidelines, NFTs primarily traded for content collection will remain exempt from virtual asset categorization. Yet, NFTs demonstrating features reminiscent of virtual assets will fall under regulatory oversight. Entities responsible for issuing such NFTs are obligated to disclose their activities to regulatory bodies as virtual asset enterprises, as reported by local media outlet News1.

What Qualifies NFT As Virtual Asset?

Key criteria determining the classification of NFTs as virtual assets encompass their widespread issuance, divisibility, and utilization as a mode of payment. Specifically, NFTs that are extensively issued in large quantities or series, thereby diminishing their uniqueness, will fall within the virtual asset realm.

The FSC emphasizes that this classification targets NFTs primarily utilized for speculative profit rather than collection purposes.

Divisible NFTs, which can be fragmented into smaller units, forfeit their distinctiveness and consequently meet the criteria for virtual assets.

Additionally, NFTs employed directly or indirectly as payment for goods or services, or exchanged among unspecified parties, are deemed virtual assets.

The FSC stresses that NFTs created solely for the purpose of being swapped for another virtual asset would also be classified as virtual assets. However, this exclusion does not extend to NFTs acquired with virtual assets through marketplaces.

Businesses Dealing with NFTs Must Comply With the ‘Specific Financial Information Act’

Jeon Yo-seop, who leads the Financial Innovation Planning Division at the FSC, clarified that these measures aim to prevent NFTs from being used as substitutes for virtual assets, thus evading regulatory oversight.

He stressed the FSC’s commitment to assessing NFTs rigorously, avoiding broad interpretations that might weaken regulatory efficacy.

Businesses engaged in NFT transactions must carefully assess these guidelines to determine whether their NFTs meet the criteria for virtual assets. Should they fall under this classification, businesses are obligated to adhere to the ‘Specific Financial Information Act,’ which governs the sale, exchange, transfer, storage, and brokerage of virtual assets. Failure to register as a virtual asset business operator could lead to legal consequences.

For businesses unsure about the classification of their NFTs, the FSC offers consultation services. Jeon mentioned that the Commission will furnish examples and case rulings to aid businesses in navigating these new regulatory requirements.

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