According to a local media report, South Korea’s Financial Supervisory Service (FSS) Chairman, Lee Bok-hyun, is scheduled to meet with the United States Securities and Exchange Commission (SEC) Chairman, Gary Gensler, in May to deliberate on the classification of non-fungible tokens (NFTs) and the approval of spot Bitcoin exchange-traded funds (ETFs). 

The meeting holds significance as South Korean and US financial authorities consider recognizing blockchain-based digital ownership by NFTs as a virtual asset.

South Korean Watchdog And US SEC To Tackle NFTs Classification

Non-fungible tokens, which provide unique certificates of authenticity for various digital assets such as images, videos, artwork, and real estate, have gained prominence in recent years in Asia. However, there is no clear legal definition for NFTs, leading to differing perspectives on whether they should be classified as technology, virtual assets, or securities. 

According to the report, in Korea, NFTs were initially excluded from the scope of virtual assets in the Enforcement Decree of the Virtual Asset Act, effective in July, due to their alleged “predominantly collectible” nature and perceived low market risk.

However, as the prices of virtual assets, including Bitcoin, have surged, non-fungible tokens have increasingly become subject to speculation, prompting calls for their recognition as countable assets alongside BTC.

The meeting between the Financial Supervisory Service and the US SEC Chairman is expected to address this issue, with industry stakeholders emphasizing the need to establish a clear definition for non-fungible tokens.

Privacy Concerns And Business Costs Surface

As the report notes, the South Korean regulator’s concerns regarding the classification of NFTs stem primarily from their diverse use cases and the potential impact on businesses operating in the field. 

While some argue that NFTs should be regulated as virtual assets, others contend that certain NFTs, such as those used exclusively within video games or as electronic versions of existing assets, should be excluded. 

In addition, including non-fungible tokens as virtual assets would require companies to obtain a virtual asset business license, which involves significant “manpower and costs,” including information security management system (ISMS) certification and regulatory audits.

Critics argue that subjecting NFTs to virtual asset regulations could impose “excessive” restrictions on banking transactions and business activities, specifically affecting startups and small to medium-sized enterprises. 

Furthermore, concerns have been raised about potential infringements on privacy rights if the Financial Services Commission were to manage all NFTs issued in Korea, allowing comprehensive tracking of the usage history of NFT-traded items such as arts, tickets, and automobiles.

The outcome of the meeting between the Financial Supervisory Service and the SEC Chairman could influence changes to the Virtual Asset Act enforcement ordinance. 

Finally, the report notes that industry experts speculate that the Financial Services Commission may work to include NFT-related definitions in the Act to provide greater clarity and guidance to companies operating in this space.

While the general agenda and timeline for the SEC meeting have not been confirmed, the discussions between the South Korean and US regulators are expected to shape the future of non-fungible tokens and Bitcoin ETFs within the virtual asset landscape and potentially pave the way for a larger regulatory framework.

Featured image from Shutterstock, chart from TradingView.com