The passing of the Korean Virtual Asset User Protection Act will bring about an important change in regulatory supervision for South Korea’s digital asset market. This legislation will subject businesses that issue non-fungible tokens (NFTs), which are categorized as virtual assets, to strict rules
The Act aims to improve governance and protection in the emerging NFT industry, specifically targeting NFTs with features like widespread issuance, divisibility, and utility as a form of payment. It also seeks to promote increased transparency and regulatory compliance among entities participating in digital asset transactions by requiring enterprises to report their operations to regulatory authorities.
Extensive Guidelines and Act Implementation
With the passage of the Virtual Asset User Protection Act on July 19, South Korea will enter a new phase of regulatory clarity about non-fungible tokens (NFTs). Newly released complete rules by the Financial Services Commission outline the standards under which NFTs are to be classified as virtual assets.
NFTs exchanged for content collecting are not considered virtual assets; however, they are subject to regulatory oversight if they resemble securities or are used as a payment method. The guidelines specify a number of factors, such as the size of the issue, divisibility, and utility in transactions, to ascertain the virtual asset status of NFTs. To ensure compliance with the regulatory framework, the Act requires operators issuing NFTs that meet virtual asset standards to report their operations to regulatory authorities.
NFT Operators’ Reporting and Compliance Requirements
Operators involved in distributing and processing NFTs are facing a critical juncture in regulatory compliance with the release of complete guidelines. A comprehensive assessment is the first step in determining whether the NFTs in question satisfy the requirements for being categorized as virtual assets.
If an NFT is classified as such, operators must examine their operations to see if they include trading, exchanging, transferring, storing, brokering, or mediating NFT transactions, as specified by the Specific Financial Information Act. Penalties may be imposed criminally for failing to report such actions as virtual asset operations. Operators who are unclear about classifying NFTs are advised to consult financial authorities, as they will soon provide examples that clarify the standards for making decisions in certain situations.
