Malta: Decoding NFTs: MFSA's New Comprehensive Guidelines Unveiled

The Malta Financial Services Authority (the "MFSA") has recently issued a comprehensive set of guidelines on Non-Fungible Tokens ("NFT"s): The Virtual Financial Assets Framework: Non-Fungible Tokens Guidelines (the "Guidelines"), which aim to provide clarity on the regulatory classification of NFTs and their applicability within the financial services framework.

The Guidelines apply to the use of NFTs within the financial services sector providing a framework for understanding how NFTs fit within the existing financial services regulations.

In general, NFTs that do not qualify as Distributed Ledger Technology ("DLT") Assets following these Guidelines will not be subject to the VFA Act.

Importantly, the Guidelines list certain criteria for an asset to be qualified as an NFT emphasizing that an NFT should be unique and not fungible, both in itself and in the underlying assets, rights, or utilities it represents.

In the event an NFT is issued in a large series or collection, it might impact the fungibility of such NFT and may result in such an asset not being considered as non-fungible. Importantly, the sole attribution of a unique identifier and/or label to an NFT is not sufficient for it to be considered as unique and non-fungible.

Furthermore, the Guidelines clarify that an NFT that, at first glance, seems to be unique and non-fungible, but whose actual characteristics or those associated with its underlying assets, rights, and/or utilities are either interchangeable or not unique, should not be classified as unique and non-fungible.

With respect to those NFTs that have been divided into fractions, each fractional NFT should not be regarded as unique and non-fungible, regardless of the original purpose of the NFT or the fractional NFTs.

The Guidelines come into force on 1 July 2023 and will apply to all NFT-related activities. They are intended to be updated periodically in order to reflect developments in the Markets in Crypto-Assets ("MiCA") Regulation, Maltese legislation, as well as market trends observed by the MFSA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.