South Korean financial regulators have announced that NFTs are not subject to the same regulations as cryptoassets. This decision is likely to benefit token issuers and blockchain gaming companies.
The nation’s top regulator, the Financial Services Commission (FSC), has asserted that NFTs will be excluded from its roster of virtual assets. This decision aligns with a similar approach taken with Central Bank Digital Currencies (CBDCs).
Previously, the FSC established separate rules for CBDCs, and lawmakers introduced legislation differentiating digital fiat from tokens such as Bitcoin.
FSC’s Definition Raises Concerns Over NFT Status
The Virtual Asset User Protection Act defines cryptoassets as electronic tokens with economic value that can be electronically traded or transferred.
However, Some argue that this definition does not clearly indicate if NFTs can legally be categorized as cryptoassets.
Historically, gaming regulators denied licenses to video games incorporating NFTs, hindering the progress of blockchain gaming in the country. However, the FSC contended that NFTs, being “unique and irreplaceable,” pose a “limited” risk to the financial system.
The regulator asserted that most NFTs are traded for collection purposes, distinguishing them from crypto, which it views primarily as a speculative tool.
Despite this statement, the new ruling does not cover all NFT issuers, as the FSC appended several conditions to its decision. It clarified that certain NFTs could still be deemed “virtual assets” under specific conditions. This includes instances where they are issued in large quantities and traded fungibly.
South Korean Financial Directives: Impact on NFTs and Crypto Exchanges
Notably, NFTs functioning as a means of payment for specific goods or services will also be classified as cryptoassets.
In addition to the NFT ruling, the FSC mandated that banks holding fiat for crypto exchange users must pay interest on deposits. In the past, the Virtual Asset User Protection Act mandated virtual asset business operators to segregate users’ deposits from their own assets. However, this requirement was coupled with the obligation to employ custodial services.
The new decree mandates exchanges to utilize banks as custodians, with banks obligated to pay interest on fiat holdings. The FSC also directed crypto business operators to store over 80% of their assets in cold wallets.