South Korean financial regulators have declared that Non-Fungible Tokens (NFTs) are not subject to the same regulations as cryptocurrencies, a decision that could provide support to token issuers and blockchain gaming companies.
The Financial Services Commission (FSC), South Korea’s top financial regulator, announced that, “following Central Bank Digital Currencies (CBDCs),” NFTs will be “excluded from” its “lists of virtual assets.”
This decision aligns with the FSC’s previous establishment of separate regulations for CBDCs, and lawmakers have crafted legislation that differentiates digital fiat from tokens like Bitcoin (BTC). The Virtual Asset User Protection Act defines cryptoassets as “electronic tokens that have economic value and can be traded or transferred electronically.”
There appears to be some ambiguity in the phrasing, leading to uncertainty about whether NFTs can be legally considered as cryptoassets. In the past, gaming regulators in South Korea have refrained from issuing licenses to video games incorporating NFTs, a stance that critics argue has hindered the advancement of blockchain gaming in the country.
Despite this, the FSC has asserted that NFTs, being “unique and irreplaceable,” present a “limited” risk to the financial system. The regulator’s position is that most NFTs are primarily traded for collection purposes, distinguishing them from cryptocurrencies, which are seen as predominantly used as speculative tools. This regulatory stance implies a differentiation between NFTs and cryptoassets in the context of financial regulations.
NFTs Not Subject to South Korean Crypto Law – But There Are Exceptions
Despite the general statement, the new ruling does not cover all NFT issuers, as the regulator has introduced certain caveats. The Financial Services Commission (FSC) clarified that under specific conditions, certain NFTs could still be considered as “virtual assets.”
These conditions include NFTs that are “issued in large quantities like typical virtual assets and traded in a fungible manner.” Additionally, NFTs that can “be used as a means of payment for specific goods or services” will also fall under the classification of cryptoassets. The introduction of these caveats suggests a nuanced approach, recognizing that not all NFTs can be exempted from the regulations governing virtual assets.
In addition to the NFT ruling, the Financial Services Commission (FSC) in South Korea has mandated that banks holding fiat deposits for crypto exchange users are now required to pay interest on those deposits.
Under the previous Virtual Asset User Protection Act, virtual asset business operators were obligated to segregate users’ deposits from their own assets and utilize custodial services. However, the new decree stipulates that exchanges must now employ banks as custodians and mandates that these banks must pay interest on the fiat holdings.
The FSC has also instructed crypto business operators to “store more than 80% of their assets in cold wallets,” emphasizing the importance of secure storage practices for digital assets.
