• 19 June, 2024

South Korea’s New Law to Regulate NFTs as Virtual Assets from July 19

Starting July 19, South Korea will enforce the Korean Virtual Asset User Protection Act, which introduces new regulations for companies issuing NFTs, per Wu Blockchain post. These businesses will be required to register as virtual asset operators if their NFTs exhibit characteristics such as large-scale issuance, divisibility, or use as a means of payment.

Under the Virtual Asset User Protection Act, general NFTs intended for content collection will be excluded from the definition of virtual assets. The Financial Services Commission (FSC) clarified these guidelines on June 10. The distinction hinges on whether an NFT can be categorized as a security or a virtual asset, based on its characteristics.

The FSC outlined specific criteria to determine when an NFT qualifies as a virtual asset. NFTs are considered virtual assets if they meet any of the following conditions: issued in large quantities, divisible in nature, usable as a direct or indirect payment method, or exchangeable for other virtual assets among unspecified persons. The guidelines prioritize examining whether NFTs meet the securities definition according to the Token Securities Guidelines established in February 2023. If the rights conferred by an NFT align with securities under the Capital Markets Act, then securities regulations will apply.

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For businesses involved in the issuance of NFTs that qualify as virtual assets, the new law mandates reporting their activities to authorities. The FSC’s criteria are designed to assess the NFT’s substance, focusing on large-scale issuance, the potential for fungibility, and their use in financial transactions. This regulatory framework aims to ensure that NFTs used in ways akin to virtual assets are appropriately regulated to protect users and maintain market integrity.

As the Virtual Asset User Protection Act takes effect, these guidelines will help businesses understand their obligations and ensure compliance. The FSC’s structured approach to classifying and regulating NFTs reflects an effort to balance innovation with financial security and investor protection.

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