The Financial Services Commission (FSC) in South Korea has released new guidelines ahead of the implementation of the ‘Virtual Asset User Protection Act’ on July 19, outlining the criteria for classifying non-fungible tokens (NFTs) as virtual assets.

According to the guidelines, NFTs intended for content collection purposes will not be considered virtual assets. However, NFTs demonstrating characteristics similar to virtual assets will be subject to regulation. Businesses issuing such NFTs will need to report their activities to authorities as virtual asset businesses.

Key factors determining whether an NFT qualifies as a virtual asset include mass issuance, divisibility, and usage as a payment method. NFTs issued in large quantities or series, diminishing their uniqueness, will fall under this category. Additionally, divisible NFTs lose their uniqueness and qualify as virtual assets.

Furthermore, NFTs used as a means of payment for goods or services or exchanged between unspecified parties will be considered virtual assets. However, this does not apply to NFTs purchased with virtual assets on marketplaces.

Businesses dealing with NFTs are required to comply with the ‘Specific Financial Information Act,’ covering the sale, exchange, transfer, storage, and brokerage of virtual assets. Failure to report as a virtual asset business operator may result in criminal penalties.

To assist businesses in understanding these regulations, the FSC is offering consultation services and providing examples and case judgments. Jeon Yo-seop, head of the Financial Innovation Planning Division at the FSC, emphasized the Commission’s commitment to strict classification of NFTs to prevent misuse and ensure regulatory effectiveness.

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