The Financial Services Commission (FSC) of South Korea has issued a new regulatory framework for NFTs, according to the news agency Yonhap.
This initiative aims to clarify the regulation of NFTs, especially those that, by their nature or use, resemble traditional cryptocurrencies.
Classification of NFTs according to their characteristics
According to the new guidelines, the FSC will treat certain NFTs as cryptocurrencies if they lose the unique qualities that distinguish them from cryptocurrencies.
For example, an NFT may be considered, in a regulatory context, as a cryptocurrency if it is mass-produced, traded fairly, divisible, or used for payments of goods and services. On the other hand, non-transferable digital tokens with little or no economic value will continue to be classified as NFTs.
Examples and criteria for distinction
For example, if a million NFTs were issued, there would be a lot of transactions and they could be used for payment purposes.
A spokesperson for the FSC explained to Yonhap that a collection of approximately one million issued NFTs could be traded and used as a means of payment, similar to cryptocurrencies. However, the FSC clarifies that the distinction will be made on a case-by-case basis, without applying an absolute standard to interpret NFTs as cryptocurrencies in a regulatory context. For example, an NFT representing a transaction proof or a ticket to a concert will be classified as a regular NFT.
Implications of the new crypto law
These guidelines come before the implementation of South Korea’s first law specifically focused on crypto regulation, scheduled for July 19. This law, named the Law on the Protection of Virtual Asset Users, aims to eradicate illicit activities in the market, such as the use of undisclosed information for crypto investments, market price manipulation, and participation in fraudulent transactions.
It also requires cryptocurrency service providers to secure more than 80% of deposits in cold wallets to protect users’ funds and to participate in insurance programs for potential user compensation in case of security breaches.
This new law is part of a two-pronged legislation to establish a regulatory framework for the crypto industry in South Korea. The second part of the regulation, currently under development, focuses on standardizing the issuance of crypto tokens and disclosing information to investors.
