The Federal Financial Supervisory Authority of Germany (BaFin) has released an explanatory note stating that nonfungible tokens (NFTs) are not yet classified as securities. BaFin suggests a case-by-case approach to classify NFTs, considering their unique characteristics and legal standing.

In its explanatory note, BaFin emphasizes that it doesn’t see NFTs meeting the criteria for classification as securities. However, the agency may consider NFTs as securities in the future, for instance, if multiple NFTs embody similar repayment and interest claims.

BaFin also notes that NFTs containing documentation of exploitation rights or ownership, such as a promise of distribution, could be regarded as an investment.

BaFin recommends a case-by-case approach to classifying NFTs as a “crypto asset,” but states that the chance of NFTs being classified as such is minimal due to the lack of standardization and immediate exchangeability.

Given the challenges with classification, BaFin does not anticipate NFTs complying with the licensing requirements of the Payment Services Supervision Act.

Additionally, except for fungibles, which are classified as financial instruments, NFTs are free of BaFin’s Anti-Money Laundering (AML) supervision. NFTs that are separately classified as “crypto assets” would need to comply with AML supervision.