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German regulator BaFin Suggests a Case-by-Case Approach for NFTs

By Simon LawsonMarch 9, 20232 Mins Read
German regulator BaFin Suggests a Case-by-Case Approach for NFTs
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On March 8, the Federal Financial Supervisory Authority of Germany, also known as BaFin, announced that it will not classify non-fungible tokens (NFTs) as securities. BaFin suggested a case-by-case approach for NFTs classification, emphasizing their freedom from licensing demands.

BaFin released an explanatory note on NFTs legal classification, stating that they don’t meet the criteria to be considered securities. BaFin may consider NFTs as securities in the future if they embody the same repayment and interest claims. However, BaFin recommends that NFTs should be classified as a “crypto asset” on a case-by-case basis.

NFTs are digital tokens that represent ownership or proof of authenticity of digital art, collectibles, or other assets. Unlike fungible tokens such as cryptocurrencies, NFTs are unique and cannot be exchanged for one another.

BaFin’s case-by-case approach is a result of the difficulties with NFT classification. NFTs are different from traditional securities and financial instruments, and their legal status varies across different countries.

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BaFin states that if an NFT contains documentation of exploitation rights or ownership, such as a promise of distribution, it could be considered an investment. However, given the lack of immediate exchangeability and standardization, the chance that NFTs will represent a “crypto asset” is even smaller than the investment classification.

BaFin does not expect NFTs to comply with the licensing requirements of the Payment Services Supervision Act. Also, NFTs are free of BaFin’s Anti-Money Laundering (AML) supervision, except for fungibles that fall under the financial instrument category. NFTs separately considered as “crypto assets” would need to comply with AML supervision.

According to a survey conducted by the metaverse platform Metajuice, almost three out of four of the NFT collectors on its platform purchase NFTs for status, uniqueness, and aesthetics. Only 13% of survey participants said they buy NFTs to resell them in the future.

BaFin’s announcement brings some clarity to the NFT market, which has been rapidly growing in recent months. The lack of regulatory guidance has been a challenge for the NFT industry, as it has made it difficult to establish legal frameworks and standards for NFT trading.

BaFin’s case-by-case approach may also have implications for NFT marketplaces and platforms. NFT marketplaces will need to take into account the legal status of NFTs when designing their platforms and ensuring compliance with regulations.

DISCLAIMER: The information provided by WebsCrypto does not represent any investment suggestion. The articles published on this site only represent personal opinions and have nothing to do with the official position of WebsCrypto.
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