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A comparison of regulations surrounding NFTs: The global legal impact

December 9, 2021

NFTs are available and traded globally because DLT platforms operate beyond borders. Therefore, issuers, advisers and purchasers of NFTs will need to consider the legal status and regulatory frameworks across multiple jurisdictions. Let's have a look on specific geographical regions:

The European Union

NFTs are not currently specifically regulated in the EU. However, the features of any proposed NFT issuance would need to be considered alongside various existing regimes, including in relation to securities, electronic money and crowdfunding, to ensure that these are not triggered. On 24 September 2020, the European Commission published the Markets in Crypto-assets Regulation (MiCA), which proposes to regulate currently out-of- scope cryptoassets and their service providers under a single licensing regime. MiCA is anticipated to take effect by 2024 and will apply to any person issuing or providing cryptoasset services across all Member States, as well as any non-EU firm seeking to trade in EU member states. One of the proposed obligations is that cryptoasset issuers would need to issue a prospectus-like "crypto-asset white paper". MiCA's definition of 'crypto-assets' includes NFTs – although, as currently drafted, issuers of non-fungible cryptoassets will not be required to publish a white paper.

The United States

Here’s a terrifying thought: The U.S. government still doesn’t really know how to regulate the $2.5 trillion crypto market. It’s not that the laws don’t exist, or that Congress is uninterested in digital assets – it’s more that there’s a lack of consensus on how to apply existing regulations to an industry that seems to mutate every few weeks. While many in a Silicon Valley, the arts and the sports and entertainment industry believe in the potential of NFTs, regulators will likely view this new form of digital asset with a degree of concern. The most pro-crypto member of the SEC, Commissioner Hester Peirce, has warned the NFT community that fractionalized NFTs could be deemed a security. Anyways, US federal sanctions laws may also be relevant to the issuance, purchase, and sale of NFTs. Thus, US and certain non-US persons transacting in NFTs, and NFT dealers in particular, should ensure compliance with regulations issued by the US Office of Foreign Assets Control prohibiting business dealings with certain persons, as NFTs of any value could be used to evade US sanctions.

Asia

As we know while speculation persists around NFTs and virtual assets, the Indian government has proposed a new law for regulating cryptocurrencies. Stakeholders and experts anticipate that this legislation will also play a role in clearing the air surrounding NFTs in India.

While in Indonesia cryptocurrencies are in a unique position in legal framework. The central bank, Bank Indonesia, through its 2020 regulation of the payment system, prohibits the use of virtual currency, including cryptocurrency, in any kind of payment transaction. Anyways based on the current regulatory landscape of crypto assets, the NFT has not yet been regulated under Indonesian law. An NFT distinguishes itself from cryptocurrencies as it adopts a non-fungible characteristic. Consequently, the price of an NFT is not determined by the market but by the NFT owner.

Also in Japan there is currently no law that directly regulates NFTs. However, if money or other assets that are considered to be a “distribution of profits” are delivered to a holder of an NFT, it is highly likely that the NFT falls within the definition of “securities” under article 2.1 of the Financial Instruments and Exchange Act.

In Singapore Generally there are three types of digital tokens being regulated – security tokens, payment tokens and utility tokens. If an NFT is determined to be a type of security token (i.e. it exhibits the characteristics of securities, such as conferring or representing a legal or beneficial ownership interest in a corporation, partnership or limited liability partnership), it may be subject to the regulatory regime governing securities.

Africa

In Nigeria there is a specific point about NFTs regulations or better "rules": it sells them alongside a Licence template which creators can use which clarifies that the buyer of the NFT receives: 1) a personal licence to use and display the art associated with the NFT, as well as 2) a commercial licence to make merchandise that displays that art associated with the NFT, a license subject to a $100,000 gross revenue per year limit. As we know Africa has the youngest population in the world but rampant unemployment, probably NFT industry is a game changer for a continent and even though governments would not rush to imply some taxes and new laws in order to increase the level of Africa's prosperity. Who knows?

In conclusion, NFT's are here to stay. In fact, considering that the current transfer of real estate ownership is labor-intensive and expensive, it is likely that NFTs will be applied to solve these transfers. By "tokenizing" property rights, it will facilitate their sale and maintenance. All in all we are welcoming you to Ukraine where we are capable of understanding all of the processes and details of regulations to make your NFT path smooth, legal and clear!