In a recent blog post, German regulator BaFin stated that it does not classify non-fungible tokens (NFTs) as securities. The regulatory body noted that NFTs could be classified as investments but are not fit to be called securities.
BaFin noted that NFTs could be called securities if they possess rights synonymous with securities, can be transferred, and are tradable in the financial market. The German regulator disclosed that it had not seen any non-fungible token that matches the criteria, hence the declaration.
A security is known as a tradable financial asset. Whether an NFT is a security or not has been a hot topic among regulators. The Market in Crypto Assets (MiCA), set to be rolled out in the U.K. and across Europe, is contemplating where to classify NFTs.
NFTs Could Be Classified as Investments
BaFin has noted that non-fungible tokens can qualify as investments under the German Banking Act (KWG). NFT can be called an investment if the token yields capital and provides interest claims for the holder. It would also fit in as an investment if the issuer guaranteed the sale of the token at a profit.
The German regulator, however, noted that just because NFTs can yield profit through purchase and subsequent sales doesn’t mean they are an investment. It stated that it all depends on the rights associated with the token and how the issuer or third party offers the token.
The U.S. regulators have made a case over assets that should be classified as securities. The Securities and Exchange Commission recently forced Kraken to shut down its crypto staking, citing it as a security.
NFTs Subject to AML Supervision
The exemption of NFTs as securities does not mean they are free from regulation, according to BaFin. The Money Laundering Act will still scrutinize non-fungible tokens if they are used to offer financial services.
Hence, BaFin urges due diligence when establishing business transactions using NFTs. Users are advised to implement risk management when making transfers to unhosted wallets.
