A guide to Non-Fungible Tokens (NFTs), 2023 - Flipbook - Page 32
NFTs in the art market
While NFTs can be used to represent a range of underlying assets, one
of the most well-known and established use cases for the technology
is within the art market.
Most often they are used to establish and certify ownership of a piece of digital
artwork, but examples can also be found of NFTs being used to represent
physical artwork.
Relevant law
As detailed above, the EU’s Fifth Money Laundering Directive (5MLD)
has been incorporated into UK law by the Money Laundering and
Terrorist Financing (Amendment) Regulations 2019 and, as currently
drafted, individuals buying or selling NFTs are unlikely to be caught
by this legislation. However, the provisions may have applicability
when considered in relation to the art market specifically.
The regulations require art market participants to apply customer due diligence
measures in relation to any trade in works of art involving transactions
amounting to 10,000 euros or more. This would require steps to be taken
including nominating an individual responsible for compliance, applying
customer due diligence procedures, providing necessary staff training and
reporting suspicious activity. For the purpose of 5MLD, currently a “work of art”
is defined in relation to section 21(5)(a) of the Value Added Tax Act 1994, but
neither piece of legislation provides clear guidance on exactly what would fall
into this category. In fact, neither 5MLD or the British Art Market Federation’s
2020 Guidance on Anti-Money Laundering for Art Market Participants offer
direct guidance in relation to NFTs. It is therefore still unclear whether NFTs
representing underlying artistic assets will be subject to these regulations.
