ALERT: NFT Marketplaces and the Shifting Regulatory Environment

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Technology platforms are empowering content creators by allowing them access to a borderless marketplace, and NFT marketplaces similarly allow artists to tap into a global pool of prospective purchasers to sell unique digital versions of art work, videos, and audio files. But when markets expand rapidly and money moves with velocity, regulators take notice so it is not a surprise that the United States Treasury is taking a closer look at the NFT market to determine whether money laundering concerns warrant increased regulatory obligations on certain industry participants.

A recent report by the U.S. Department of the Treasury broadly examines the potential for facilitating money laundering and terrorist financing through the trade in works of art, including through online marketplaces. The report does not provide any rulemaking or definitive resolutions as to the obligations of NFT marketplaces, but it does provide insight into how the Department defines NFTs and may seek to apply AML obligations required of cryptocurrency exchanges and traditions financial institutions.

Dapper Labs, SuperRare, and OpenSea are a few of the most popular NFT platforms, providing an opportunity for individuals to browse and purchase digital collectible artwork. The features of each site and the type of art may differ, but all three marketplaces offer opportunities to buy and sell unique digitized artistic expressions that are minted, held, transferred, and destroyed via smart contracts and digital wallets.

Who regulates NFT Marketplaces?

The Department’s views on the regulatory requirements applicable to NFT platforms are generally congruent with those expressed by the Financial Action Task Force (FATF), an intergovernmental organization whose mandate is to develop policies to combat money laundering and terrorist financing. The FATF cannot create binding laws or policies, but its guidance exerts a significant influence on counter-terrorist financing and anti-money laundering (AML) laws among its members, and the U.S. Department of the generally implements regulations based on the FATF’s guidance.

Two bureaus of the Department are primarily responsible for monitoring activity and enforcing laws with respect to financial transactions and trade. The Financial Crimes Enforcement Network (FinCEN) combats domestic and international money laundering and terrorist financing and the Office of Foreign Assets Control (OFAC) enforces economic and trade sanctions.

What regulations apply to NFT marketplaces?

An NFT marketplace may be considered a Virtual Asset Service Provider or (VASP) under FATF’s definitions depending on the nature and characteristics of the NFTs offered. Such platforms operating in the U.S. would likely be subject to regulation by FinCEN.

Defining “Virtual Asset Service Providers (VASPs)”

FATF defines VASP as any natural or legal person that operates as a business and conducts one or more of the following activities or operations for or on behalf of another natural or legal person:

  1. exchange between virtual assets and fiat currencies;
  2. exchange between one or more forms of virtual assets;
  3. transfer of virtual assets;
  4. safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and
  5. participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.[1]

Under this definition, issuers of NFTs and platforms bringing together buyers and sellers of NFTs may be considered VASPs provided the NFTs fall within the definition of a “Virtual Asset.” If an entity is labeled as a VASP, it will be subject to compliance with the rules of its jurisdiction. This generally includes implementing a compliance program to combat money laundering and terrorist financing. In the United States, entities regulated by FinCEN will be required to register as a money services business and various comply with various recordkeeping and reporting requirements.

Defining “Virtual Assets”

The report issued by the Department follows the guidance set forth by FATF for defining virtual assets, stating:

Digital assets that are unique, rather than interchangeable, and that are used in practice as collectibles rather than as payment or investment instruments, depending on their characteristics, are generally not considered to be virtual assets under the FATF definition. NFTs or other digital assets, however, that are used for payment or investment purposes in practice may fall under the virtual asset definition, and service providers of these NFTs could meet the FATF definition of a VASP.

Neither FATF nor the Department have commented on what constitutes “investment purposes.” NFTs are generally collectibles, but does the fact that it was originally purchased from an issuer as an investment make that issuer a VASP? Similarly, would the exchange of an NFT for services bring that particular NFT within the definition of a Virtual Asset?


The issue is further complicated since FinCEN regulates exchanges of “value that substitutes for currency,” a term not limited or qualified in scope. Under these loose definitions, an NFT could be subject to regulation at one point of sale and exempt at another. This flexibility leaves the door open for regulators to enforce more stringent regulatory requirements as desired, and industry participants should push for further clarity on these issues.

[1] See also FATF, “Updated Guidance: A Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers,” October 2021, available at https://www.fatf-gafi. org/publications/fatfrecommendations/documents/guidance-rba-virtual-assets-2021.html.

The issue is further complicated since FinCEN regulates exchanges of “value that substitutes for currency,” a term not limited or qualified in scope. Under these loose definitions, an NFT could be subject to regulation at one point of sale and exempt at another. This flexibility leaves the door open for regulators to enforce more stringent regulatory requirements as desired, and industry participants should push for further clarity on these issues.

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As lawyers, technologists, and entrepreneurs, the firm’s partners began their journey in the crypto industry by building and operating cryptocurrency mining machines and a private digital asset investment fund. They quickly realized that the industry was woefully underserved by legal professionals who grasped the impact blockchain technology would eventually have on the world. Bull Blockchain Law LLP was founded to support the growth of a new breed of technology. Today, the firm serves as counsel to clients of all sizes and an advocate for sound public policy. It remains one of the few law firms completely focused on the crypto industry.