NFTs Consumer NFT Guide

Non-Fungible Tokens (NFTs) have exploded onto the scene with sales such as the Beeple NFT fetching US$69m catching the attention of people across the world. NFTs are increasingly seen as a new digital ownership framework that creates opportunities for new business models. Artists, creators or musicians can attach stipulations to an NFT that ensures they receive some of the proceeds when it gets sold – benefitting if their work increases in value. Similar to DeFi, the blockchain technology adds a layer of security to the trading of NFTs. Smart contracts ensure that assets change hands automatically and the algorithms ensures that both parties honour their agreements. 

At present, the legal status of NFTs is uncertain. Nevertheless, its rise in popularity and high value transactions have resulted in jurisdictions taking steps to try to identify what / if any regulatory approach should be taken towards the use of NFTs. At present, there is not a specific regulatory initiative aimed at NFTs, but some regulations capture certain NFTs. For example, in the UK, certain NFTs may fall under the classification of ‘security tokens’ or ‘e-money tokens’ and thus would fall under the Financial Services and Market Act 2000 or Electronic Money Regulations 2011, however, the reality is that most fall outside of this scope. The EU recently discussed the inclusion of NFTs within the remit of the Markets in Crypto Assets (MiCA) regulation, however the extent to this is yet to be seen. As the NFT market continues to expand, so too will the regulatory focus on this application.

May 2024 U.S. Department of the Treasury

The U.S. Department of the Treasury published a 2024 Non-fungible Token (NFT) Illicit Finance Risk Assessment, which explores how vulnerabilities associated with NFTs and NFT platforms may be exploited by illicit actors for money laundering, terrorist financing, and proliferation financing. 

March 2024 The Law Society

The Law Society published its response to the Law Commission’s consultation on digital assets as personal property.

March 2024 Commodity Futures Trading Commission (CFTC)

The Commodity Futures Trading Commission Global Markets Advisory Committee (GMAC) approved a digital asset taxonomy for recommendation to CFTC Commissioners. The taxonomy may guide future regulatory and policy decisions.

In addition, the GMAC’s Digital Asset Markets Subcommittee will reassess any future developments in the digital asset ecosystem to provide further recommendations to the approach in the taxonomy, based on the guidance of its members. The Subcommittee aims to support effective rules and regulations for digital assets, and recommends continued collaboration between industry, standard-setting bodies, and the regulatory community.

March 2024 Internal Revenue Service

The Internal Revenue Service reminded taxpayers to report all earned income on their tax return, including income earned from digital asset transactions, the gig economy and service industry, as well as income from foreign sources.

February 2024 Law Commission

The Law Commission launched a short consultation on draft legislation to confirm the existence of a third category of personal property into which crypto-tokens and other assets could fall.

The Law Commission's June 2023 final report concluded that certain digital assets, including crypto-tokens and non-fungible tokens (NFTs), are "capable of attracting personal property rights." However, because digital assets "differ significantly from physical assets, and from rights-based assets like debts and financial securities, they do not fit within traditional categories of personal property."  The Commission recommended that legislation should confirm the existence of a “third” category of personal property.

The Law Commission has prepared draft legislation to reflect this recommendation and is seeking views on the draft clauses as to their potential impact. 

The deadline for responses is 22 March 2024.

December 2023 Central Bank of The Bahamas

The Central Bank of The Bahamas announced the release of the Digital Assets Guidelines 2023, with an effective date of 12 December 2023. The Guidelines provide Supervised Financial Institutions (SFIs) with an overview of the Central Bank’s expectations for "exposure to digital assets activities and identification of accepted best practices for effective risk management." 

SFIs should take a "risk-based approach, factoring in their Board approved risk appetite and their resources. Where there may exist additional risks posed by digital assets, SFIs should ensure that the risks are promptly identified, measured, and mitigated."

October 2023 HM Treasury

HM Treasury published the outcome of its February 2023 consultation 'Future financial services regulatory regime for cryptoassets'. 

The government has confirmed its final proposals for cryptoasset regulation in the UK, including its intention to bring a number of cryptoasset activities into the regulatory perimeter for financial services for the first time. 

This document provides the government’s response to the consultation and call for evidence on the future financial services regulatory regime for cryptoassets, which was published on 1 February 2023. 

It summarises the feedback received by HM Treasury in response to the consultation, and details how this has influenced further development of the government’s approach. 

October 2023 Government of Germany

The German Ministry of Finance published its draft Act on the Digitization of the Financial Market (Financial Market Digitization Act - FinmadiG), which incorporates the necessary regulations for the implementation of the Markets in Crypto-Assets Regulation, the EU Money Transfer Regulation and the European DORA package.

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