A guide to Non-Fungible Tokens (NFTs), 2023 - Flipbook - Page 22
This regulatory approach allows all types of cryptoasset to be categorised
for the purpose of determining whether or not they fall within the regulatory
perimeter. Therefore, to determine whether NFTs (as a form of cryptoasset)
are regulated under the UK financial services regime, it must be determined
whether they meet the criteria set out within any one of the RAO, MiFID or EMR.
The vast majority of NFTs are unlikely to fall within these legislative regimes,
and therefore it is probable that most NFTs will be unregulated tokens not
subject to financial services regulation. However, care should be taken where
NFTs have any characteristics of regulated investments, such as where they
represent fractional ownership akin to a shareholding, or where they represent
value which might amount to e-money. Where NFTs are deemed to be regulated
tokens, the usual regulatory requirements will apply, including requiring activities
to be authorised by the FCA.
Currently, unregulated businesses are also not subject to the restrictions on
financial promotions under section 21 of the Financial Services and Markets
Act 2000 (FSMA). However, the government has announced plans to include
the promotion of certain qualifying cryptoassets within the scope of this
restriction. It is likely that this will apply primarily to fungible cryptoassets, such
as cryptocurrency, but could be expanded in the future to NFTs.
Anti-money laundering regulation
The EU’s Fifth Money Laundering Directive ((EU) 2018/843) (5MLD5) came
into effect in the UK on 10 January 2020 through amendments to the Money
Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer)
Regulations 2017 (SI 2017/692) (MLRs 2017) by way of the Money Laundering
and Terrorist Financing (Amendment) Regulations 2019 (SI 2019/1511).
This expanded the scope of the MLRs 2017 to incorporate cryptoassets
exchanges and custodian wallet providers. The definition of “cryptoassets”
under the MLRs 2017 is wide enough to incorporate NFTs. However, at present,
the regulations only apply to NFT exchanges or wallet providers, requiring them
to register with the FCA and comply with MLRs 2017, including significant
disclosure requirements. Individuals buying or selling NFTs are unlikely to be
caught by the MLRs 2017, unless they are undertaking such activities by way of
business offered to other participants.
In terms of the broader approach, the Financial Action Task Force (FATF), of
which the UK is a member, currently sets international standards for money
