The Virtual Financial Assets Framework: Non-Fungible Tokens Guidelines

The Malta Financial Services Authority (the “MFSA”) published a set of guidelines (the “Guidelines”) on the 23rd June 2023, with the aim to aid FinTech companies understand how non-fungible tokens (“NFTs”) fit within the Maltese Virtual Financial Assets (“VFAs”) regime.Following the Consultation that was held between the 5th December 2022 until the 6th January 2023, the Authority drew up these Guidelines. The scope of the Consultation document was for the Authority to obtain stakeholder feedback in relation to the exclusion of NFTs from the VFA framework. The MFSA highlights that the typical features borne by NFTs, which are its uniqueness and lack of interchangeability, do not allow the freedom for such assets to be used for investment or payment purposes. It was also noted that such assets go against the nature of the VFA Act, which is to regulate investment-type services offered in relation to VFAs that fall outside the remit of the traditional financial services regulations.Due to the reasons outlined above, the guidelines intend to align domestic legislation with the Markets in Crypto-Assets (‘MiCA’) Regulation. The MFSA has assessed the situation and has now decided that the NFT will need to go through the Financial Instrument Test, much like any other DLT Asset.Guideline G6-1 states that “A NFT should be considered unique and not fungible where the NFT is unique and not fungible with other assets and the underlying asset/s, right/s and/or utility/ies represented by the NFT are also unique and not fungible.” However, the Authority expressly denotes that the token cannot simply seem to be an NFT at face value, but rather all its features must be considered.The full Guidelines may be found here.

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This article has been authored by Dr Chanelle Meli, Regulated Industries and Compliance Advisor. Contact us here or on info@csbgroup.com for more information.