German regulator BaFin proposes ‘case-by-case’ approach for NFTs

The German Federal Financial Supervisory Authority, BaFin, has not yet established a definitive classification for Non-Fungible Tokens (NFTs) as securities. Instead, the agency is considering reviewing and classifying NFTs on a case-by-case basis.

NFTs do not meet securities criteria

The BaFin Journal published on March 8, a statement on the regulatory classification of NFTs. Currently, NFTs do not meet the criteria to be considered securities, according to regulators. However, in the future, BaFin may consider classifying NFCs as securities if, say, 1,000 NFCs have the same repayment and interest obligations.

Another consideration is that an NFT with documentation of exploitation rights or ownership, such as a distribution promise, can be considered an investment.

The case-by-case approach

BaFin recommends classifying NFTs as “crypto assets” on a case-by-case basis. However, according to BaFin, NFTs are even less likely to be considered “crypto-assets” than to be considered investments due to the lack of instant interchangeability and standardization. NFTs are therefore not considered “e-money”.

Given the challenges of classification, BaFin does not expect NFTs to comply with the licensing requirements of the Payment Services Supervision Act. In addition, apart from fungibles that are considered financial instruments, NFTs are exempt from BaFin anti-money laundering oversight. However, NFTs that are individually considered “crypto assets” as a slot would be subject to AML oversight.

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