South Korean Regulator Will Not Regulate NFT’s Because They Are Not “Virtual Assets”
November 5, 2021
The South Korean Financial Services Commission (FSC) has reportedly determined that Non-Fungible Tokens (NFT’s) are not “virtual assets” as defined by the Financial Action Task Force (FATF).
In October 2021, FATF provided “Updated Guidance for a Risk-Based Approach” for “Virtual Assets and Virtual Asset Providers” which provided as follows:
Digital assets that are unique, rather than interchangeable, and that are in practice used as collectibles rather than as payment or investment instruments, can be referred to as a non-fungible tokens (NFT) or crypto-collectibles. Such assets, depending on their characteristics, are generally not considered to be VAs under the FATF definition. However, it is important to consider the nature of the NFT and its function in practice and not what terminology or marketing terms are used. This is because the FATF Standards may cover them, regardless of the terminology. Some NFTs that on their face do not appear to constitute VAs may fall under the VA definition if they are to be used for payment or investment purposes in practice. Other NFTs are digital representations of other financial assets already covered by the FATF Standards. Such assets are therefore excluded from the FATF definition of VA, but would be covered by the FATF Standards as that type of financial asset. Given that the VA space is rapidly evolving, the functional approach is particularly relevant in the context of NFTs and other similar digital assets. Countries should therefore consider the application of the FATF Standards to NFTs on a case-by-case basis.
It remains possible however that certain NFT’s could be determined to be securities which would fall under the remit of Korea’s Financial Supervisory Service.