The trajectory of the NFT sector has been a very interesting one. A few years ago, NFTs were an idea few people had heard of. Now, billions of dollars have been poured into the market and everyone from Jack Dorsey to Grimes has released an NFT of some kind.
Needless to say, NFTs have seen quite a journey. Despite all this global visibility and success, NFTs are still a largely underregulated sector. Just like cryptocurrencies that came before them, NFTs will need some time before they are fully accepted by regulators.
However, it seems that Abu Dhabi might not be waiting too long to put regulatory frameworks in place for NFTs. This comes as the financial regulator of the Abu Dhabi Global Market (ADGM), a financial hub and free zone in the United Arab Emirates, has released a new consultation paper. In the paper, the hub released guidance for the legal treatment of NFTs and put out a call for more comments.
NFT Regulations in the Middle East?
According to the paper, which was released on March 20, 2022, the ADGM’s Financial Services Regulatory Authority (FSRA) is not looking to release formal regulations for NFTs just yet.
Instead, the paper, titled “Proposals for enhancements to capital markets and virtual assets in ADGM” suggests that companies in the region that already have trading and custody licenses should be able to offer NFTs as well as multilateral trading facilities (MTFs) and Virtual Asset Custodians (VAC).
This is partly because the document does not define NFTs as financial documents but rather as intellectual property. The zone’s CEO Emmanuel Givanakis also said, regarding NFTs, that “If there’s a derivative built around them, then yes, then they become a financial instrument.”
At the same time, some transactions involving NFTs might trigger the body’s Anti-Money Laundering (AML) and Sanctions Rules.
Nevertheless, there is no formal regulation for NFTs in place at this time. Instead, the paper is open to comments and contributions up until May 20, 2022. With the feedback that the paper receives, some sort of regulation might be put in place for NFTs and those who deal in them.
Too Big to Ignore?
While the future treatment of NFTs in Abu Dhabi and the wider UAE might not be predictable at this time, the consultation paper is indicative of the government’s attitude. More specifically, it shows that attention is being paid to NFTs and their role within the business world.
Crypto lovers will remember how many years it took for crypto regulation to be looked at seriously in many parts of the world. Perhaps learning from the mistakes from the past, NFT regulation seems to be on its way faster.
At the same time, the ADGM was one of the first regions in the world to implement comprehensive regulations for digital assets as far back as 2018. Now that NFTs are the hottest digital asset, it is only natural that they get the same treatment.