Are NFTs regulated?
Select jurisdiction
Netherlands
To the extent that NFTs do not qualify as a financial instrument under the Financial Supervision
Act (Wet op het financieel toezicht, the “Wft”), NFTs are regulated under the Dutch
implementation of the Fifth Anti Money Laundering Directive (“AMLD5”): Regulation for the
prevention of money laundering and terrorist financing (Wet ter voorkoming van witwassen en
financieren van terrorisme, the “Wwft”).
NFTs will be regarded as a virtual currency under the Wwft. Art. 1(1)(b) Wwft defines ‘virtual
currency’ as “a digital representation of value that is not issued or guaranteed by a central bank
or a public authority, is not necessarily attached to a legally established currency and does not
possess a legal status of currency or money, but is accepted by natural or legal persons as a
means of exchange and which can be transferred, stored and traded electronically”.
Art. 23b Wwft stipulates a registration obligation with the Dutch Central Bank (De
Nederlandsche Bank or “DNB”) for crypto service providers that provide these services in a
professional capacity or on a commercial basis in or from the Netherlands. Crypto service
providers are (i) providers of services for the exchange between virtual and regular currencies
and (ii) custodian wallet providers. A provider offers exchange services when it effects
transactions or enables customers to effect transactions in which virtual currencies are
exchanged for regular currencies or vice versa (not defined under the Wwft). A custodian wallet
provider is defined as “an entity that provides services to safeguard private cryptographic keys
on behalf of its customers, to hold, store and transfer virtual currencies” (art. 1(1)(a) Wwft).
India
Through the Finance Bill 2022, India has included NFTs in the definition of “virtual digital asset” under section 2 (47A) of the Income-tax Act, 1961. Hence, NFTs are regulated tax-wise. Moreover, KYC is mandatory for virtual asset service providers. Whether any other regulations apply to NFTs is unclear.
France
To date, NFTs are not regulated by a dedicated law in France; nevertheless, many existing laws
apply to NFTs, so that they cannot be considered as unregulated assets.
In France, there is currently no specific law defining NFTs and associating them with a
dedicated legal regime. The French Superior Council of Literary and Artistic Property
(“CSPLA”) proposes to retain a flexible legal qualification of NFTs as a title of rights on a token
but also on a file, whose object, nature, and extent vary according to the will of its issuer
expressed by the technical and possibly legal choices associated with the smart contract.
When the underlying asset to an NFT is protected by intellectual property rights (e.g., Pieces
of art, trademarked content, collectibles…), intellectual property laws apply. The CSPLA
published a report in July 2022 on NFTs with several non-binding recommendations, stating
that the production, issuance and circulation of NFTs associated with to protected works are
fully subject to intellectual property laws. The CSPLA considers that the provision of a digital
file via a NFT, for permanent use, could fall under the “communication to the public” right
provided for by Directive 2001/29/CE, which is not subject to exhaustion of rights. This is
because a NFT is a coded element that is neither the protected work, nor the material
embodiment of the digital file, nor does it constitute its material and tangible support. The
CSPLA also refers to NFTs as a technology that carries “structural risks” of copyright
infringement and forgery.
There is an uncertainty as to the application to NFTs of the regulatory framework of digital
assets introduced by Law No. 2019-486 of May 22, 20193, and codified under the French Financial and Monetary Code.
At the time of drafting of this Law, NFTs were not very well known yet and the main objective of this Law was to regulate cryptocurrencies and financial cryptoassets.
In addition, various other existing French and EU regulations apply to NFTs, such as consumer
law to protect consumers, platform liability laws to apply to NFT market places, tax law.
A dedicated law to come?
From a European perspective, a compromise has been found within the Council of the
European Union about the Markets in Crypto-assets (MiCA) regulation and it should be
adopted by the European Parliament in early 2023 and its obligations shall apply within 12 to
18 months after its entry into force. Subject to any new amendments, it is clearly stated within
the regulation bill that it should not apply to (i) NFTs whose value is attributable to each
cryptoasset’s unique characteristics and the utility it gives to the token holder, including digital
art and collectibles; and (ii) NFTs representing services or physical assets that are unique and
not fungible, such as product guarantees or real estate. It should nevertheless be noted that
MiCA regulation will apply to fractional NFTs. In addition, the Commission shall present a
report to the European Parliament and the Council that will include an assessment of the
development of markets regarding NFTs, including the necessity and feasibility of regulating
specifically NFTs.
From a French perspective, there is no specific bill being discussed on NFTs, to our knowledge,
since MiCA regulation will apply directly in France. The CSPLA recommends to adopt a French
legislative qualification of NFTs, according to the persistent use cases.
Austria
Due to the different designs of NFTs in technical, functional and economic terms, it is not possible to
provide a one-size-fits-all answer for the legal classification of NFTs. An assessment under
supervisory law must always be based on the specific design of the ICO on a case-by-case basis.
Depending on the specific design of the business model in connection with NFTs, there may however
be linkages to existing supervisory laws.
Nigeria
There is no specific law on NFT regulating the space as of now. There are other
pieces of law and common laws that would necessarily come to play i.e.
copyright law, contract law, sales of goods law, property law and general
commercial law.
Japan
Even though NFT is not regulated directly, depending on the specific situation, NFT may be subject to some financial regulations including regulations on collective a) investment schemes, b) crypto-assets, c) exchange transactions, d) prepaid payment instruments, and may also
constitute e) gambling, which is a criminal offense.
Poland
Currently, in Poland, there is no legal framework directly addressing NFTs and their legal recognition. However, it cannot be simply assumed that NFTs are unregulated digital assets in Polish jurisdiction. Depending on the nature and the factual content of the rights associated with a given NFT (whether they constitute a utility token, security token, payment token, or hybrid token) and the types of transactions, it may be subjected to different legal regulations in force in Poland (e.g. AML law, copyright law, securities law, etc.). Whether or not given regulations apply to a given NFT, must be assessed individually for each NFT and each transaction.
