The Malta Financial Services Authority has issued a Consultation Document on the regulatory treatment of Non-Fungible Tokens (‘NFTs’) in the context of the Virtual Financial Assets (‘VFA’) Framework. The Consultation sets out the MFSA’s proposal for clarification on the treatment of NFTs in the context of the VFA Framework and seeks to obtain stakeholder feedback in this regard.

The EU’s MiCA will exclude crypto-assets which are unique and not fungible with other crypto-assets from its scope, thereby eliminating the need for any form of authorisation when engaging in issuance or provision of services in relation to NFTs

Current Treatment

The current regulatory position is that, given that NFTs are intrinsically built on DLT and the definition of DLT Assets is open-ended, such assets would qualify as DLT Assets within the meaning of the Virtual Financial Assets Act and should therefore be subject to a Financial Instrument Test on a case-by-case in order to determine the applicable regulatory framework.

Proposed Treatment

In the Consultation Documents, the MFSA acknowledges that (i) the uniqueness and lack of interchangeability of NFTs effectively limit the extent to which such assets may be used for investment or payment purposes; and (ii) the VFA framework seeks to regulate investment-type services offered in relation to VFAs falling outside the scope of existing traditional financial service asset categories. Moreover, the EU’s upcoming Markets in Crypto-assets Regulation (‘MiCA’), expected to enter into force in 2023, will exclude crypto-assets which are unique and not fungible with other crypto-assets from its scope, thereby eliminating the need for any form of authorisation when engaging in issuance or provision of services in relation to NFTs.

The MFSA is now proposing that certain NFTs also be excluded from the Malta VFA Framework

Accordingly, the MFSA is now proposing that certain NFTs, which display clear characteristics of uniqueness and non-fungibility, also be excluded from the Malta VFA Framework.

Stakeholders are invited to provide feedback to the Consultation by no later than Friday 6 January 2023 via the following link

https://survey.alchemer.eu/s3/90510475/MFSA-Consultation-NFTs.