In a continued first-country approach, the Malta Financial Services Authority (MFSA) has issued a consultation on whether Non-Fungible Token (NFTs) should be regulated under Maltese law.
Under the current regulatory regime, any DLT Asset must undergo the Financial Instrument Test (FIT) which is required to determine the legal classification of the token under Maltese law. The test thus helps determine whether any DLT Asset qualifies as (a) a virtual token, (b) a financial instrument, (c) electronic money or (d) a Virtual Financial Asset (VFA). Depending on the result of the FIT, the DLT Asset would be required to comply with the requirements and obligations under the applicable regulatory regime. In the consultation document, the MFSA is opining that NFTs are also currently required to undergo this same procedure.
However, MFSA acknowledges that in view of their nature, NFTs are unique and lack interchangeability and are thus not a viable asset for investment and payment purposes. In the document the MFSA also makes reference to the upcoming Markets in Crypto-Assets Regulation (MiCA) which will exclude from scope crypto-assets that are unique and not fungible with other crypto-assets.
The MFSA is thus seeking the industry’s feedback as to whether NFTs should also be excluded from the currently regulatory framework in Malta.
The MFSA’s stance in this consultation document appears to be a step in the right direction in acknowledging the reality of NFTs and their underlying assets. As we wait for the MFSA to adopt its final position following the review of all feedback received, we trust that this will provide more clarity to all those seeking to tokenise assets in the form of NFTs
The feedback period for this consultation document is open till Friday 6th January 2023.
This article was written by Dr Cherise Abela Grech and Ms Jodie Arpa.