[NEWS] South Korean regulator issues guidelines to determine whether NFTs qualify as crypto assets

The Korea Financial Services Commission (FSC) announced new guidelines on NFTs on the 10th. Reported by South Korea's Yonhap News. The FSC has reiterated its definition of NFTs before the Cryptocurrency User Protection Act comes into effect in July.

"In light of the coming into effect of the Cryptocurrency User Protection Act, we have prepared these guidelines to provide clear criteria for determining whether NFTs are crypto assets, to increase the predictability of the law, and to facilitate its application," the FSC said.

The new guidelines define that NFTs that are specialized for the purpose of "content collection," such as videos and images, do not qualify as crypto assets. In addition, NFTs with limited economic value or use are also not considered crypto assets.

On the other hand, NFTs that are issued in large quantities, NFTs that are divisible, and NFTs used as direct or indirect means of payment appear to be classified as crypto assets.

In this way, the FSC will determine the nature of NFTs by taking into account various factors such as the issuance and distribution structure and the content of services.

The FSC also urged major countries to determine the legal nature of NFTs based on their substance, not their form or technology.

For example, the SEC (Securities and Exchange Commission) has determined that some NFTs are securities and has imposed securities regulations. In addition, Japan issued NFT guidelines through the JCBA (Japan Cryptocurrency Business Association) in 2021, and the Financial Services Agency has also explained the patterns that fall under crypto assets.

In addition, Germany determines crypto assets according to their nature, such as securities if they are transferable, and crypto assets if they are used for payment or investment purposes.

Jeon Yo Seop, head of the Financial Innovation Planning Department at the FSC, pointed out that "For example, if 1 million NFTs are issued, there is a possibility that transactions will increase and they will be used for payment purposes." He also said, "If a large number of NFTs are issued, they may be used for general purposes such as the initial purpose of collecting."

However, the FSC has emphasized that it will not impose specific regulations, such as the number of NFTs to be issued, in order to promote NFTs and prevent the industry from shrinking due to an excessive approach.

In addition, a related task force will be established to prepare a support system so that companies can respond to each regulation. The FSC recommends that those conducting NFT-related business check the legal nature of their business to ensure compliance with relevant laws beforehand.

What is the Cryptocurrency User Protection Act?

The Cryptocurrency User Protection Act, scheduled to come into force in July this year, aims to establish order in the cryptocurrency market and stipulates specific criminal penalties and fines for market manipulation, illegal transactions, and the use of undisclosed important information about cryptocurrencies.

In the case of criminal penalties, imprisonment of one year or more or a fine equivalent to three to five times the amount of illicit profits will be imposed. In addition, if the amount of illicit profits exceeds 5 billion won (approximately 570 million yen), the maximum sentence may be life imprisonment.

Reference:Press
Image: Citation from the announcement

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