What are the regulations for NFTs in major Asian countries?
NFT Regulation Status in South Korea, Japan, Taiwan, and Singapore
TL;DR
While some countries are establishing legislation concerning virtual assets or cryptos, Non-Fungible Tokens (NFTs) remain without clear regulations, existing in a gray area.
The situation is similar in Asian markets. Two factors contribute to this: 1) Nascent stage of NFT market, and 2) broad and varied potential interpretations of NFT usage. Hence, most countries haven't yet proposed any specific regulations for NFTs.
However, two recent developments highlight the increasing need for NFT-related legislation: 1) A surge in money laundering cases involving NFTs, and 2) Growing user confusion due to the lack of clear regulations around NFTs.
Introduction
Recently, the U.S., Europe, and other developed countries have begun enacting legislation related to virtual assets, gradually incorporating them into regulatory systems. However, unlike these moves, NFTs lack clear regulations and a place within these systems, and it remains unclear whether NFTs qualify as virtual assets. In fact, the European Union's 'Markets in Crypto Assets (MiCA)' proposal, a law concerning crypto asset markets, excludes NFTs from regulatory application, deferring it for future improvements. This exclusion suggests that due to NFTs' extensive use, a considerable amount of time is needed to establish a classification system or to formulate related laws. Nevertheless, the call for NFT-related legislation is growing louder due to 1) a recent surge in instances where NFTs are misused for money laundering, and 2) increasing user confusion because of the absence of clear regulations regarding NFTs.
In this article, we will examine the current state of NFT regulation, focusing primarily on the Asian market, where NFT trading is most vibrant worldwide. We will also aim to predict the future direction of NFT market regulation.
South Korea: The Country with the Highest Probability of Incorporating NFTs into Regulatory Systems
South Korea has legislation in place concerning virtual assets, but the regulation of NFTs remains a gray area. Without clear regulations on NFTs, interpretations vary within the country, and the application of regulations differs depending on the use of NFTs. First, if NFTs can function as a means of payment, they are likely to be classified as virtual assets under the Special Financial Transaction Information Act. Second, if NFTs have security-like properties, they may qualify as investment contract securities under the Capital Market Act. Lastly, some interpretations view NFTs merely as digital content.
These different views on NFT regulation affect the purchasing process. In Korea, virtual assets possess the nature of cash equivalents and gambling, making payment via credit cards impossible. Furthermore, card companies block all approvals related to virtual asset payments at the government's request. For instance, Ground X, a blockchain subsidiary of Kakao, announced support for NFT purchases via credit card but immediately withdrew this support due to the unclear legal status of NFTs. Other NFT marketplaces in Korea also seem to use methods like bank transfers or small payments via mobile phones instead of credit card payments, leaving the possibility open for NFTs to be classified as virtual assets in the future. However, in cases where the digital content nature of NFTs is strong or when NFTs are approached as certification for a specific product purchase, card payments may be possible depending on the interpretation of the card company or NFT-related businesses.
Korea continues to face some confusion due to the unclear legal status of NFTs. However, the upcoming 'Virtual Asset Business Rights Act' is expected to likely include NFTs as virtual assets, which could alleviate some of the market confusion.
Taiwan: The Nation monitoring the NFT Market on the back seat
Taiwan, like South Korea, lacks specific regulations concerning NFTs. The Taiwanese government announced a plan in March 2023 to enact special legislation to regulate the cryptocurrency market, with the Financial Supervisory Commission set to oversee it. However, they decided to exclude NFT regulation for the time being, deeming NFT market as a premature one.
Since July 2022, Taiwan explicitly prohibits credit card payments for digital assets. Given that NFTs could partially fall under this category, purchasing NFTs via credit cards is limited. Nonetheless, a few local marketplaces where you can buy NFTs with a credit card exist, citing the perspective that NFTs may not qualify as digital assets. How Taiwanese card companies and banks view NFTs largely influences this.
The possibility of NFTs entering the regulatory realm in Taiwan remains, with the newly established Ministry of Digital Affairs (MODA) in September 2022 anticipated to discuss NFT regulations. However, it is predicted that establishing classifications for NFTs and drafting guidelines will take considerable time.
Singapore: First country to recognize NFTs as an asset class
Singapore, renowned for its sophisticated cryptocurrency regulations like the 'Payment Services Act', relatively underserves NFTs, excluding them from regulation. Indeed, a closer look at the Payment Services Act reveals that NFTs are defined as 'limited purpose digital payment tokens', explicitly exempted from the act's application. This exclusion appears to be due to the fact that NFTs, unlike general goods and services, cannot serve as a payment method and possess a unique, non-fungible property. In addition, a high-ranking official from the Monetary Authority of Singapore (MAS) stated in February 2022 that there were no plans to regulate NFTs.
However, in May 2022, a Singapore court recognized the property rights of NFTs. Coupled with the growing recognition of NFTs' significance within Singapore, it's highly likely that NFTs will gradually be integrated into the regulatory system.
Japan: Country with various regulations to tackle NFTs
Japan is among the most receptive Asian countries to the virtual asset market. Yet, like many countries, it has no clear regulations for non-fungible tokens (NFTs). However, the regulatory landscape for NFTs can vary based on their use. For instance, NFTs that have huge issuance amounts and hold a certain level of fungibility, like Ethereum, may be classified as crypto assets under payment service laws. If NFTs are used to distribute profits from a business, they could potentially be classified as collective investment securities. Furthermore, if NFT holders receive goods or services from the issuer in exchange for the NFT, the token could fall under the category of prepaid payment instruments. At times, randomly bundled NFT products might even be treated as gambling and subject to related criminal law.
Japan prohibits the purchase of crypto assets via credit cards, a policy clearly stated by Japanese card companies. Nonetheless, purchases of NFTs are allowed on Japanese marketplaces such as 'LINE NEXT' and 'Rakuten NFT.' This is because these platforms do not classify NFTs as crypto assets or prepaid payment methods, but simply as digital content products.
Conclusion
At present, major Asian countries, like other developed nations, lack clear regulations for non-fungible tokens (NFTs). Crafting appropriate regulations is expected to take some time, as the NFT market is still in its nascent stage. Regulating an immature market could potentially hinder its growth. NFT businesses in major Asian countries operate without a virtual asset license or other regulatory oversight, which might create confusion if NFT regulations are suddenly introduced. Businesses may need to obtain additional licenses or adjust their business models, leading to potential disruption. However, with the surge in instances of NFTs being used for money laundering, and the confusion and inconvenience caused by different policies from country to country and service to service, discussions on NFT regulations are necessary.