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NFTs & the FATF: Are They Regulated? KYC & AML

Catarina Veloso
Catarina Veloso
July 10, 2023
Catarina, Regulatory & Compliance Senior Associate at Notabene, specializes in global crypto regulations. With roles including co-chair of the CryptoUK Travel Rule group and part of the EBA Expert Group, she shapes Travel Rule compliance. Holds Masters in Energy Law and BA in Law.

NFT regulation depends on their use and uniqueness.
Both the FATF and the EU adhere to a 'substance over form' principle.
Unique NFTs, primarily functioning as collectibles, are not classified as VAs.
NFTs used for payment, investment, or lacking uniqueness could be classified as VAs.
EU's MiCA prioritizes the intrinsic features of unique crypto assets like NFTs over the issuer's designation.
Unique NFTs are generally exempt from regulations, but activities related to NFTs might be subject to AML regulations.
FATF advises evaluating NFTs on a case-by-case basis, considering them as VAs under certain conditions.
FATF and EU commit to ongoing NFT market monitoring and guideline development for crypto-asset classification.

One of the major challenges in crypto regulation has been to link new categories of assets and services and the legal definitions of what qualifies as regulated assets and services. Non-fungible tokens (NFTs), stablecoins, and decentralized finance (DeFi) remain gray areas subject to evolving regulatory perspectives.

This article, taken from our 2023 State of Crypto Travel Rule Compliance Report, provides a side-by-side comparison of the Financial Action Task Force's (FATF) and the European Union's (EU) regulatory stances on NFTs.

What are NFTs?

NFTs are unique digital assets tokenized on a blockchain and have distinct identification codes, and metadata. Users can trade NFTs for fiat money, cryptocurrencies, or other NFTs based on their value determined by the market and owners. NFTs are challenging to classify and regulate due to their various possible configurations.  The entire crypto market took a hit in 2022, and NFTs were no exception, as noted in the chart below.

NFTs were the subject of several regulatory and legal interventions and initiatives in 2022, ranging from insider trading cases to intellectual property qualifications and advertisement restrictions. By way of example, we provide highlights below. N.B. The dates accompanied by a clipboard icon indicate a document a regulator produced.

NFT Legal & Regulatory Spotlight in 2022

  • June 1, 2022 - A former employee of OpenSea (an NFT marketplace) was charged in the first digital asset insider trading scheme with accusations of wire fraud and money laundering.
  • June 23, 2022 📋 - The European Union Intellectual Property Office (EQUIPO) clarifies how they classify NFTs, incorporating the term “downloadable digital files” authenticated by non-fungible tokens in Class 9.
  • November 29, 2022 - The European Parliament hosted a meeting with NFT and metaverse experts. Industry representatives suggested policymakers regulate use cases rather than technology.
  • December 21, 2022 - The UK's Advertising Standards Authority ruled against and Turtle United's NFT advertisements for not disclosing investment risks.

Crypto Travel Rule and NFTs

The FATF and EU have divergent, nuanced perspectives on NFT regulation, including varying. classifications and approaches. The primary distinction revolves around whether an NFT is considered a Virtual Asset (VA), which depends on usage and characteristics. The disparities mainly arise from differences in evaluation criteria and the circumstances determining VA status. The following sections provide an overview of the FATF's and EU's general positions on NFTs as VAs and if they consider NFT-related activities as covered by the regulation. Additionally, we discuss notable developments and essential considerations from the FATF and EU.

FATF vs. EU: General Stance on NFTs

FATF: FATF generally does not consider NFTs as VAs; however, the classification can depend on the nature and purpose of the NFT. It suggests governments evaluate each NFT case-by-case based on its intrinsic characteristics rather than the terminology used in its marketing. 

According to the FATF, an NFT would be classified as a VA if it's used primarily for payment or investment and has features that make it either fungible or not unique, such as the fractional parts of a unique crypto-asset, or if it's issued as part of a large series or collection. [1] 

EU: On the other hand, the EU’s stance, particularly reflected in the MiCA (Markets in Crypto-assets Regulation), maintains that unique crypto-assets like NFTs, digital art, and collectibles are excluded from its scope. [2]

In the EU, the uniqueness of the crypto-asset and the value it brings to the holder, and its non-fungibility determine whether or not it falls within the regulation. Like FATF, the EU encourages authorities to adopt a substance-over-form approach, emphasizing the asset's features over the issuer's designation.

FATF vs EU: Is an NFT a Virtual Asset?

FATF: An NFT is not a VA if used as a collectible rather than for payment or investment. However, it is considered a VA if used for payment or investment or if its unique features become fungible.

EU: In contrast, the EU excludes unique and non-fungible crypto assets, like NFTs, from the VA classification. However, if an NFT's de facto features or uses make it either fungible or not unique, it may be considered a VA.

FATF vs. EU: Are NFT-Related Activities Regulated? 

FATF: In its Money Laundering and Terrorist Financing in the Art and Antiquities Market report, the FATF recognizes that “markets for digital art, non-fungible tokens (NFTs), and art finance service providers all have intrinsic characteristics that expose them to different money laundering and terrorist financing vulnerabilities.” [3] FATF also clarified that NFT platforms that offer NFTs functioning as VAs may be considered VASPs, which the FATF Standards cover.

Factors to consider when assessing the application of AML/ CFT obligations:

  1. The nature of the business dealing in NFTs;
  2. Their function in practice; and
  3. The facts and circumstances of the platform or other person doing business. [4]

EU: Although MiCA generally excludes NFTs, the forthcoming Anti-Money Laundering Directive 6 (AMLD 6) will likely cover companies that provide services related to NFTs.

FATF vs. EU: Noteworthy NFT Developments

FATF: In its Targeted Update 2022, the FATF acknowledges the “rapid development of NFT markets and their functions/forms,” and promises to “continue to monitor this issue and discuss any new implementation issues and country approaches.” [5] 

EU: Similarly, The European Securities and Markets Authority (ESMA) is mandated to publish guidelines on criteria and conditions for the qualification of crypto-assets as financial instruments. The guidelines should also help better understand cases in which crypto-assets that are otherwise considered unique and not fungible with other crypto-assets might be qualified as financial instruments.NFT offerors or persons seeking admission to trading are primarily responsible for the correct classification of the crypto-assets, which the competent authorities might challenge.


As the debate around the regulatory status of NFTs continues, it is clear that the technology is advancing at a pace that challenges existing legal and regulatory frameworks. FATF and the EU have recognized the complex nature of NFTs and their potential risks. Their nuanced approach reflects a careful and ongoing analysis of how these unique digital assets fit within the broader financial system.

While these organizations may differ in their current views on whether NFTs qualify as Virtual Assets, there is an alignment in the principle of evaluating NFTs on a case-by-case basis, considering their intrinsic characteristics and practical uses. This approach signifies a move towards a substance-over-form philosophy in regulatory practices.



[1] FATF (2021). Updated Guidance for a Risk-based Approach to Virtual Assets and Virtual Asset Service Providers, page 21, paragraph 53.
[2] EU Parliament (2023). Markets in Crypto-Assets, paragraph 10
[3] FATF (2023). Money Laundering and Terrorist Financing in the Art and Antiquities Market, page 4.
[4] FATF (2023). Money Laundering and Terrorist Financing in the Art and Antiquities Market, page 19, footnote 17.
[5] FATF. (2022). Targeted Update on Implementation of the FATF Standards on Virtual Assets/VASPs, page 20, paragraph 37.


What is the regulatory status of Non-fungible Tokens (NFTs) according to FATF and EU?

The FATF and EU both adopt a nuanced view towards the regulatory status of NFTs. The classification of an NFT as a Virtual Asset depends on factors such as its usage and characteristics. If primarily used as a unique collectible, it is not viewed as a VA. However, if used for payment or investment, or if its features render it fungible or not unique, it may be considered a VA.

How does the Crypto Travel Rule apply to NFTs?

The application of the Crypto Travel Rule to NFTs is intricate and dependent on the specific nature of the NFT. If an NFT is used as a medium of payment or investment, or if it loses its uniqueness due to features such as fractionalization or being part of a large series, it enters the realm of Virtual Assets and is thus subject to the Crypto Travel Rule.

What is the European Union's stance on NFTs and how does it compare with FATF's position?

While both the FATF and EU recommend a case-by-case evaluation of NFTs based on their intrinsic characteristics, there are differences in their approach. The FATF considers an NFT a Virtual Asset if used primarily for payment or investment. On the other hand, the EU, under its Markets in Crypto-assets Regulation, generally excludes unique crypto-assets like NFTs from its scope.

Are NFT-related activities considered Virtual Assets under FATF and EU regulations?

The FATF has recognized potential vulnerabilities in the digital art, NFTs, and art finance service providers market, and suggests that NFT platforms offering NFTs functioning as Virtual Assets may fall under their regulatory purview. The EU, though generally excluding NFTs under MiCA, might include companies providing services related to NFTs under the forthcoming Anti-Money Laundering Directive 6 (AMLD 6).

Why is NFT regulation important?

NFT regulation is crucial to ensuring the legitimacy and stability of the burgeoning NFT market. Proper regulation can deter fraudulent activities, protect consumer interests, and mitigate financial risks associated with money laundering and terrorism financing. Furthermore, clear regulatory frameworks can foster investor confidence and promote wider adoption of NFTs and other crypto-assets.

What are the advantages of NFT regulation?

Regulating NFTs comes with several advantages. Firstly, it provides a legal framework that protects investors and users from fraudulent practices. Secondly, it ensures the accountability and transparency of NFT issuers and platforms. Thirdly, regulation can facilitate the integration of NFTs into the mainstream financial ecosystem by ensuring compliance with standard financial regulations like AML/CFT measures. Lastly, it offers clarity and guidance to market participants navigating this complex and rapidly evolving field.