NFT Issuers in Korea Must Register as Virtual Asset Operators Under New Law

NFT Issuers in Korea Must Register as Virtual Asset Operators Under New Law

Starting July 19, a new Korean law will mandate that companies issuing certain types of NFTs register as virtual asset operators. This requirement is part of the Korean Virtual Asset User Protection Act, which aims to regulate NFTs that feature large-scale issuance, divisibility, or use as a means of payment.

The Financial Services Commission (FSC) issued guidelines on July 10 detailing the criteria for NFTs to be classified as virtual assets. General NFTs used for content collection will not fall under this classification. However, NFTs with characteristics such as high fungibility, divisibility, or payment use will be regulated as virtual assets.

Under the new law, companies must report their business activities related to NFTs considered virtual assets. The FSC’s guidelines outline the conditions under which an NFT is deemed a virtual asset. These include large-scale issuance, where numerous identical or similar NFTs are produced, diminishing their uniqueness. Divisible NFTs, which can be broken into smaller units, and those used as direct or indirect payment methods for goods or services also fall under this regulation.

To determine if an NFT qualifies as a security, the FSC will refer to the Token Securities Guidelines from February of the previous year. If an NFT confers rights that meet the definition of securities under the Capital Markets Act, then securities regulations will apply regardless of the NFT’s form or technology.

Businesses must assess whether their NFTs are virtual assets and report their activities accordingly, in line with Article 2, Paragraph 1 of the Specific Financial Information Act. Failure to comply with the reporting requirements can result in criminal penalties. The FSC advises businesses uncertain about the status of their NFTs to seek clarification from the authorities. Jeon Yo-seop, head of the Financial Innovation Planning Division at the FSC, emphasized that the FSC would provide examples to help businesses make these determinations.

    Newsletter | Every weekday

    Smart Central News Weekly Briefing

    Only top industry news of the week in your inbox