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South Korean media is reporting that the country’s financial regulator, the FSC, has declined to regulate NFTs as they do not fall under the definition of “virtual asset” provided by FATF.
Citing unnamed government officials at the FSC, the Korean Herald reported that as FATF guidance says that NFTs are “digital assets that are unique, rather than interchangeable, and that are in practice used as collectibles rather than as payment or investment instruments,” it’s out of their regulatory remit.
This doesn’t mean that the burgeoning industry would be unregulated forever. There still is the option on the table for NFTs to be regulated as securities, though that would be via a different regulator, the Financial Supervisory Service. Korea’s The Herald cites an expert expressing concern about price manipulation in the market, and the need to create a form of supervisory framework specifically for NFTs.
In addition, NFTs that function as “security tokens”, such as providing the holder with royalties, would be considered a regulated entity.
“Some NFTs that on their face do not appear to constitute virtual assets may fall under the VA definition if they are to be used for payment or investment purposes in practice,” reads the guidance published on October 28. “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.”
“We are weighing whether NFTs fall into the virtual-asset category because there is a demand to include NFTs among virtual assets,” the country’s finance minister is quoted as saying.
At the same time, South Korea’s entertainment industry is making its first foray into NFTs. Hybe, the agency behind the boy band sensation BTS, announced late Thursday that it is making a strategic investment into Dunamu, parent of the Korean exchange Upbit, taking a 2.5% stake in the company for approximately $500 million, with Dunamu taking a 5% stake in Hybe for $590 million.
The two plan to launch an NFT marketplace for fan collectibles in the near future using Hybe’s vast IP library and talent roster.