German regulator BaFin suggests a ‘case-by-case’ approach for NFTs

Given the difficulties with classification, BaFin highlights the freedom of nonfungible tokens from licensing demands.

The Federal Financial Supervisory Authority of Germany (BaFin) is not ready to classify nonfungible tokens (NFTs) as securities. The agency suggests classifying the NFTs on a case-by-case basis. 

On March 8, the BaFin journal published an explanatory note considering NFTs legal classification. At this point, the regulators don’t see how NFTs meet the criteria to be considered securities. However, in the future, BaFin may consider NFTs as securities if, for example, 1,000 NFTs embody the same repayment and interest claims.

According to another reservation, if an NFT contains documentation of exploitation rights or ownership, such as a promise of distribution, it could be considered an investment.

The agency recommends a case-by-case approach to classifying NFTs as a “crypto asset.” But, according to BaFin, the chance that NFTs will represent a “crypto asset” is even smaller than the investment classification, given the lack of immediate exchangeability. The lack of standardization also spares NFTs of “e-money” status.

Given the difficulties with classification, BaFin doesn’t expect NFTs to comply with the licensing requirements of the Payment Services Supervision Act. And, except for fungibles, which fall under the financial instrument category, NFTs are also free of BaFin’s Anti-Money Laundering supervision. NFTs separately considered “crypto assets” would need to comply with AML supervision.

Related: German DZ Bank adds digital currencies to asset management services

According to the metaverse platform Metajuice, almost three out of four of the NFT collectors on its platform purchase NFTs for status, uniqueness and aesthetics. Only 13% percent of survey participants said they buy NFTs to resell them in the future.