NFT collections will be regulated as cryptocurrencies under the EU’s MiCA law, officials say
SEOUL, South Korea – Non-fungible tokens (NFTs) that are part of a pool will have to use new European Union (EU) crypto rules meant to warn investors about risks, an official told attendees at Korea Blockchain Week on Tuesday .
The remarks come despite earlier claims that the innovative ownership tokens would be excluded from the bloc’s recently agreed Markets in Crypto Assets (MiCA) Act. The EU reached a political agreement on MiCA at the end of June – and how to treat NFTs, which offer a tradable, digital way to prove ownership of assets such as works of art, was a major sticking point in the last-minute talks.
Although the agreement settled the most important political elements of the law, no text is yet available. In theory, according to official statements, the final draft law exempts NFTs unless they constitute another form of crypto-asset. In practice, statements from the European Commission’s Peter Kerstens suggest that carveout may provide little relief.
Read more: Crypto World is wary of finer details in the EU’s MiCA law
EU lawmakers “take a very narrow view of what is an NFT,” said Kerstens, who is an adviser on technological innovation at the commission’s financial services, suggesting that few assets would benefit from the exemption.
“If a token is issued as a collection, or as a series – even though the issuer may call it an NFT and even though each individual token in that series may be unique – it is not considered to be an NFT, so the requirements will apply”, said Kerstens.
It would mean that issuers of NFT pools would have to publish a white paper detailing the protocol used by the NFTs and would be prohibited from making outlandish promises of future value that could mislead people into buying, he added.
EU national authorities believed that including NFTs in MiCA would be an unjustified expansion of a bill originally designed to protect investors in stablecoins and initial coin offerings. But lawmakers from the European Parliament, who also had to sign off on the legislative agreement, were more hawkish, arguing that the NFT market is susceptible to securities-style price manipulation such as wash trading.
Kerstens himself had previously said that it would be “stupid” to require a white paper – a lengthy regulatory document roughly equivalent to the prospectus prepared for stocks – for every NFT. The idea that NFT platforms such as OpenSea would have to seek regulatory authorization had raised concerns about stifling innovation in the nascent industry.
The European Commission, largely the EU’s executive arm, proposed the first draft of MiCA back in 2020. Since then, it has brokered talks in the EU’s Council and Parliament as they changed the law.
Read more: EU adopts Landmark Crypto Authorization Law, MiCA
Korean regulators are still hesitating on how to regulate the crypto asset industry. The approach taken by the EU – and by the US, whose Congress currently has a number of crypto bills pending – could prove crucial in setting their direction.
Korean government officials told local media in June that work on the country’s upcoming digital asset framework, the Digital Asset Basic Act, would begin in earnest in October, after US regulators published the reports ordered by President Joe Biden’s executive order on crypto.
