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NFTs: Are They Financial Products?

Our Managing Partner, Gerard and Counsel, Teck Chai recently authored a very interesting piece for the IFC Review titled “NFTs: Are They Financial Products?”

Non-Fungible Tokens (“NFTs”) have risen considerably in popularity, with the word “NFT” named Collins Word of the Year 2021. The question as to whether NFTs are subject to regulation in Singapore has thus become an extremely important one. While the Monetary Authority of Singapore (“MAS”) does not single out NFTs for regulation, the “technology-neutral approach” is adopted, meaning that digital assets would be regulated regardless of their labels if they have features of financial products.

“A Guide To Digital Token Offerings”, a Digital Token Guide issued by the MAS, explains the various instances in which a digital token may constitute capital markets products (such as share, debenture or collective investment scheme (CIS)) regulated under the Securities and Futures Acts 2001. For instance, an NFT may constitute a “share”, where it represents ownership interest in a corporation or represents liability of the NFT holder in the corporation; a “debenture”, where it evidences the indebtedness of the issuer of the NFT for money borrowed by that issuer from the NFT holder; or a unit in a “CIS”, where it represents a right or interest in a CIS, or an option to acquire a right or interest in a CIS.

Where an NFT is determined to be a type of capital markets product based on an assessment of its structure and characteristics it may be subject to the regulatory regime governing capital markets products. This may include complying with the offering regime for an offer of capital markets product and the licensing requirements for dealing in capital markets product. If the structure and characteristics of NFTs are not within MAS’ regulatory purview, the issuer of an NFT may nonetheless be subject to other legislation for anti-money laundering.

The article also considers the tax treatment of NFT transactions, stating that if it is determined that a taxpayer is not trading in NFTs, then any gains or profits from the NFT transactions will not be taxable. However, any losses will also similarly not be deductible.

GerardKit or Teck Chai to know more about our FinTech practice.

The article may be accessed here

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