South Korea has reportedly tightened regulations on NFTs. The country’s financial authorities have recently unveiled new guidelines categorizing certain non-fungible tokens (NFTs) as virtual assets in anticipation of the Virtual Asset User Protection Act, set to take effect on July 19. This legislative move alters the previous stance where NFTs were not recognized as virtual assets within the country.
New Classifications and Requirements
The revised guidelines clarify which types of NFTs will be considered virtual assets under the new law. Notably, this change will not affect NFTs that are bought and sold mainly for their collectible value. However, NFTs that serve dual purposes or carry additional functionalities beyond collectibility will be subjected to a detailed review. These may be classified either as securities or virtual assets, depending on their characteristics.
Entities that issue such NFTs are now obligated to register with the authorities, and failure to comply with this regulation could lead to severe penalties. The decision on whether an NFT qualifies as a security will be based on the nature of the content it represents, following the criteria outlined in South Korea’s Token Securities Guidelines.
Guidelines for Compliance
The Financial Services Commission (FSC) has set forth specific factors to assess whether an NFT can be considered a virtual asset. These include the token’s potential for exchange, mass production capabilities, divisibility, and utility in transactions. This individualized assessment aims to ensure that each NFT’s classification is fair and reflective of its actual use and value.
Businesses dealing in NFTs are encouraged to consult with the FSC if they are uncertain about their tokens’ classification. This proactive approach mitigates risks and ensures that all parties adhere to the upcoming legal framework.
As the deadline for enforcing the new law approaches, South Korean businesses involved in the NFT market are urged to review their offerings against these guidelines to ensure full compliance and avoid any legal repercussions.