With the ‘Virtual Asset User Protection Act‘ set to take effect on July 19, the Financial Services Commission (FSC) has issued new guidelines detailing when non-fungible tokens (NFTs) should be considered virtual assets.
Under the new guidelines, general NFTs traded for content collection purposes will remain outside the scope of virtual assets. However, NFTs exhibiting characteristics akin to virtual assets will be subject to the same regulations. Businesses issuing such NFTs must report their operations to authorities as virtual asset businesses, local outlet News1 reported earlier today.
What Qualifies NFT As Virtual Asset?
NFTs must meet several requirements in order to be considered virtual assets, including being widely issued, convertible, and used as a form of payment. NFTs will specifically fall under the virtual asset category if they are issued in large quantities or in series, which will reduce their uniqueness.
The FSC made clear that this classification is meant for NFTs where market profit is the main goal instead of collection.
NFTs that are divisible, or that can be divided into smaller pieces, also lose their distinctiveness and become virtual assets.
Furthermore, NFTs that are exchanged between anonymous parties or utilized directly or indirectly as payment for goods or services are regarded as virtual assets.
The FSC emphasized that NFTs that are issued with the exclusive intention of being traded for another virtual asset will be categorized as virtual assets. NFTs acquired on marketplaces using virtual assets are not covered by this.
Businesses Dealing with NFTs Must Comply With the ‘Specific Financial Information Act’
These steps, according to Jeon Yo-seop, head of the Financial Innovation Planning Division at the FSC, are meant to stop people from abusing NFTs as exchange notes to get around laws governing virtual assets.
He made it clear that the FSC will evaluate NFTs objectively and will not adopt sweeping interpretations that would lessen the impact of regulations.
Companies that handle NFTs should carefully review these guidelines to find out if the NFTs they handle are considered virtual assets. Businesses that do so have to abide by the “Specific Financial Information Act,” which regulates the buying, selling, trading, transferring, storing, and brokering of virtual assets. Penalties may be imposed criminally for operators of virtual asset businesses who fail to register.
The FSC provides consulting services for companies that are unsure about the classification of their NFTs. Jeon mentioned that to help companies understand these new rules, the Commission will offer case rulings and examples.