The MFSA issues Guidelines on Non-Fungible Tokens

On the 23rd of June 2023, the Malta Financial Services Authority (the “MFSA”) issued a set of guidelines (the “Guidelines”) which shall aid FinTech companies understand how non-fungible tokens (“NFTs”) fit within the Maltese Virtual Financial Assets (“VFAs”) regime.

These Guidelines were issued following a consultation which was held between the 5th of December 2022 to the 6th of January 2023. The consultation was published with the purpose of asking the stakeholders whether they agree that the MFSA excludes NFTs from the VFA framework. The main concern regarding the NFT was that due to its uniqueness, it could not be used as freely for investment. This goes against the scope of the VFA Act, which is to regulate investment-type services offered in relation to VFAs that fall outside the scope of the traditional financial services regulations.

Through the newly issued guidelines, the MFSA wishes to harmonise the treatment of the NFT with the upcoming Markets in Crypto Assets (“MiCA”) Regulation. The MFSA has assessed the situation and has now decided that the NFT will need to go through the Financial Instrument Test, much like any other Distributed Ledger Technology Asset.

In Guideline G6-1, the MFSA has provided us with the criteria that make up the NFT. This guideline states that the ‘NFT should be considered unique and not fungible where the NFT is unique and not fungible with other assets and the underlying asset/s, right/s and/or utility/ies represented by the NFT are also unique and not fungible’. However, the MFSA makes it clear that the token cannot simply seem to be an NFT at prima facie, but rather all its features must be considered.

The full Guidelines can be found here.

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