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8 CLIFFORD CHANCE NON-FUNGIBLE TOKENS: THE GLOBAL LEGAL IMPACT A GLOBAL ISSUE: WHAT ARE THE REGULATORS DOING? NFTs are available and traded globally because DLT platforms operate beyond borders. Therefore, issuers, advisers and purchasers of NFTs will need to consider the legal status and regulatory frameworks across multiple jurisdictions. There is very little global regulatory guidance as to whether NFTs fall within the perimeter of existing regulation applicable to cryptoassets. Most jurisdictions have not yet developed regulatory frameworks specifically applicable to NFTs, although several have implemented or published plans to regulate DLT or cryptoassets more broadly. Liechtenstein is an exception, having established a law regarding the civil and supervisory framework for the tokenisation of rights in physical assets, which would cover certain NFTs. Some highlights of international regulatory developments across key global financial centres are set out below. European Union (EU) • NFTs are not currently specifically regulated in the EU. However, the features of any proposed NFT issuance would need to be considered alongside various existing regimes, including in relation to securities, electronic money and crowdfunding, to ensure that these are not triggered. • On 24 September 2020, the European Commission published the Markets in Crypto-assets Regulation (MiCA), which proposes to regulate currently out-of- scope cryptoassets and their service providers under a single licensing regime. MiCA is anticipated to take effect by 2024 and will apply to any person issuing or providing cryptoasset services across all Member States, as well as any non-EU firm seeking to trade in EU member states. One of the proposed obligations is that cryptoasset issuers would need to issue a prospectus-like "crypto-asset white paper". MiCA's definition of 'crypto-assets' includes NFTs – although, as currently drafted, issuers of non-fungible cryptoassets will not be required to publish a white paper. Germany • The German implementation of the 5th AML Directive (AMLD5) defined "crypto assets" as financial instruments within the meaning of the German Banking Act (KWG). Under the KWG, crypto asset means "a digital representation of value that is not issued or guaranteed by a central bank or a public authority and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange or payment or which can be used for investment purposes and which can be transferred, stored and traded electronically". The reference to being used for investment purposes is an expansion of AMLD5. As NFTs can, in principle, be used for investment purposes given their unique (value- creating) character, there are good arguments that NFTs may qualify as crypto assets and therefore as financial instruments under the KWG. In this respect, the underlying service in relation to an NFT (i.e. brokerage or trading-related activities) may trigger a licence requirement. • Some NFTs may qualify as investment products under the German Capital Investment Act, which governs the public offerings of investment products that promise an interest payment, repayment of invested capital or a cash settlement in exchange for an investment of capital. Whether NFTs fall within this definition is a question of fact, subject to the characteristics of the particular token. Italy • Under the Italian implementation of AMLD5, the definition of "virtual currency" also encompasses digital representations of value which are not used as means of exchange but are held for investment purposes, as long as they are transferred, stored and traded electronically. In principle, NFTs could fall within the scope of such definition and trigger AML obligations.PDF Image | NON-FUNGIBLE TOKENS GLOBAL LEGAL IMPACT
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