Non-fungible tokens (NFTs) are constantly appearing in the news. NFT platforms such as mushrooms appeared and processors such as OpenSea appeared. The real platform economy is emerging, like the ones YouTube or Booking.com have taken root in. But this is a very small economy that struggles to understand the legal issues that apply to it.
Regulators are starting to take an interest in this issue, and there is a risk of failure if the industry does not start to regulate itself quickly. As usual, the first battles are expected to be in the eastern Atlantic.
In this first article on the legal framework for NFTs, we will focus on the application of the digital asset regime and finance law to NFTs in France. We will return to liability and copyright issues in another article.
Related: Legally Non-Working Tokens
In France, the definition of digital assets includes two types of tokens. On the other hand, these are service codes, that is, all intangible assets that digitally represent one or more rights that can be issued, registered, stored or transferred using a common electronic recording device, allowing the owner of the relevant asset. It is determined directly or indirectly.
NFTs are intangible assets that can be issued, registered, held or transferred through common electronic items.
On the other hand, payment tokens, that is, a digital representation of value that is not issued or guaranteed by a central bank or government agency, is not necessarily associated with legal tender and does not have the legal status of money, but is accepted by individuals and legal entities as a medium of exchange. which can be transmitted, stored or exchanged electronically.
Is NFT a digital asset under French law?
An NFT is acquired to take ownership, but one or more services associated with the NFT may also be required.
In addition, NFTs can be thought of as a digital representation of value that is not issued or guaranteed by a central bank or government agency, that is not necessarily associated with legal tender and does not have the legal status of money, and that can be stored or exchanged electronically. It follows that NFTs can be classified as digital assets as either a usage token, a payment token, or both.
The implications of classifying NFTs as digital assets will be twofold.
Register as a VA . Service Provider
If the platform that issues the NFT implements, in addition to its primary market, a secondary market where users will benefit from: 1) storing digital assets or accessing services for the benefit of a third party to store, hold or transfer such digital assets, and/or 2) a service to buy or sell Digital assets as legal tender, and/or 3) a service to exchange digital assets for other digital assets, and/or 4) operation of a platform for trading digital assets requires mandatory registration as a digital asset provider to the French financial regulator, Autorité des Marchés Financiers (AMF).
Additionally, customers must be identified using the Know Your Customer feature. Our analysis is supported by the fact that NFTs are referred to as “crypto assets” under the Proposed European Markets for Crypto Assets (MiCA) regulation.
Related Topics: How Should DeFi be Regulated? European approach to decentralization
The Financial Action Task Force (FATF) also issued a statement on the uptake of NFTs into “digital assets” in October 2021. Recommending that NFTs “are not generally considered [virtual assets].”
However, as in its approach to DeFi, the FATF stresses that regulators should “take into account the nature and functionality of NFT in practice, not the marketing jargon or jargon used.” In particular, the FATF states that NFTs “used for payment or investment purposes” can be virtual assets.
Related Topics: FATF Guide to Virtual Assets: Winning NFTs, Losing DeFi, And Staying Unchanged
Although the guidance does not include a definition of the term ‘investment purposes’, it is likely that the FATF intends to capture those who purchase NFTs with the intent of later reselling them for profit. While many buyers buy NFTs for their association with the artist or work, most of the industry buys them for the potential to add value. In other words, under this interpretation, many NFTs qualify as digital assets.
ICO mode application?
Once a public offering of digital assets takes place in France (for more than 150 potential buyers), the French ICO system is implemented.