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With the explosion of the crypto market in the country, South Korea has been tightening its regulations on the digital assets space. However, the Financial Services Commission (FSC) said that non-fungible tokens won’t be regulated as it does not consider NFTs virtual assets.
The FSC made its decision not to regulate NFTs after its review of the updated guidelines from the Financial Action Task Force (FATF), according to Cointelegraph. The Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers dated October 28, 2021, made a distinction between cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH), and collectibles such as NFTs.
“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 non-fungible tokens (NFT) or crypto-collectibles,” the FATF stated. “Such assets, depending on their characteristics, are generally not considered to be VAs under the FATF definition.”
But the FATF warned that some NFTs might be considered as virtual assets depending on their function. As such, some NFTS might still be covered by the updated guidelines.
“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,” the FATF explained. “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,” the agency added.
The FATF explained that determining whether an NFT is a virtual asset or not based on its function is necessary. “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,” the FATF said.
