South Korean financial watchdog introduces new NFT guidelines

South Korea’s Financial Services Commission (FSC) has issued new guidelines providing clarity on when non-fungible tokens (NFTs) can be treated as virtual assets.

Local news platform News1 reported that the FSC will regulate NFTs in the same way as cryptocurrencies, provided they do not have unique features that distinguish them from other virtual assets.

NFTs are subject to the same regulations as cryptos

According to the FSC, NFTs that are mass produced, divisible, and can serve as a means of payment will be considered virtual assets. This means that these NFTs will be subject to the same regulations as cryptocurrencies. However, NFTs that have little to no value, such as those used for ticketing or as digital certificates, will be classified as general NFTs and treated differently.

Jeon Yo-seop, head of Financial Innovation Planning at the FSC, stated in an interview that it is very likely that NFT collections with a large number of units could be used as a means of payment. He emphasized that such a situation, where for example one million NFTs are issued in a collection, would generate many transactions and that these NFTs could therefore function as a means of payment.

Each collection is assessed individually

Despite these new guidelines, the FSC will assess each collection individually, meaning there is no absolute standard for interpreting NFTs as crypto. The FSC also suggested that NFTs can be treated as securities if they meet the characteristics specified in South Korea’s Capital Markets Act.

In preparation for the introduction of new rules for virtual assets in July 2024, the FSC has issued several guidelines to help stakeholders navigate the country’s legislation. In 2023, the FSC announced that virtual assets must earn interest when deposited on a crypto exchange, although this does not apply to regular NFTs and central bank digital currencies (CBDCs).

Several NFTs are eligible for interest

The recent update reiterates previous statements that NFTs classified as virtual assets can earn interest once they are deposited on exchanges. This means that NFTs used as a means of payment and issued in large quantities are eligible for interest.

With these new guidelines, the FSC aims to provide a clear regulatory framework that will promote the growth and use of NFTs and other virtual assets in South Korea.