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South Korea Issues New Regulatory Guidelines for NFTs

To clarify the changing non-fungible token (NFT) market, South Korea’s Financial Services Commission (FSC) introduced new guidelines on Monday, as reported. These regulations aim to define and classify certain NFTs under existing cryptocurrency frameworks based on their characteristics and usage.

Criteria for NFT Classification

Under the new directives, the FSC will consider NFTs lacking unique, mass-produced, or interchangeable qualities as regular cryptocurrencies. This classification also extends to NFTs used in transactions for goods and services. 

The agency noted that digital tokens without transfer capabilities and those holding minimal economic value will retain their status as traditional NFTs. Examples include NFTs that serve as transaction proofs or concert tickets.

The FSC clarified that the scale of the collection is a key factor. Collections with around a million tokens will be classified similarly to cryptocurrencies. These assessments will be made case by case, avoiding a one size fits-all approach and ensuring tailored regulatory oversight.

Regulatory Framework for NFTs as Financial Securities 

Adding to the regulatory landscape, the FSC’s guidelines also outline the possibility of an NFT being recognized as a financial security if it aligns with the conditions outlined in the nation’s Capital Markets Act. This designation would bring NFTs further under rigorous financial regulations, mirroring traditional asset classes.

The guidelines require enterprises engaging with NFTs to adhere to the ‘Specific Financial Information Act.’ This act encompasses various activities, including virtual asset sales, exchange, transfer, storage, and brokerage. Businesses that fail to register as virtual asset operators risk facing criminal charges. This highlights the gravity of these regulatory measures.

Jeon Yo-seop, the head of the Financial Innovation Planning Division at the FSC, emphasized that these guidelines aim to prevent NFTs from being misused as alternative currencies that could sidestep virtual asset regulations. The FSC is committed to a stringent review process to maintain the regulatory framework’s efficacy.

Guidance and Impact of New NFT Regulations in South Korea

The FSC offers consultation services for businesses that are still determining their NFTs’ status under the new rules. This support aims to aid companies in understanding and navigating the new regulatory environment through illustrative examples and case judgments.

The introduction of these guidelines marks a significant step towards structuring the NFT market within South Korea‘s broader financial regulatory system. The FSC establishes clear guidelines for virtual assets to promote innovation while ensuring compliance with existing financial regulations.

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