Why most NFT platforms fail KYC – and how to fix it?
Why most NFT platforms fail KYC – and how to fix it?
NFT platforms have operated in a regulatory grey zone. That period is closing. Regulatory frameworks now explicitly include NFT activities under existing AML obligations, especially when platforms act as intermediaries in high-value transactions or facilitate fiat-to-crypto conversion.
In 2024, the EU’s Markets in Crypto Assets (MiCA) regulation extended VASP treatment to NFT platforms that provide custody or trading services. The UK FCA clarified that NFT platforms enabling secondary sales may fall under regulated activities requiring AML registration.
The UAE's VARA framework applies AML expectations to platforms dealing in tokenised assets, regardless of their perceived artistic value.
Regulatory expectations are not speculative. They are enforceable, expanding, and actively applied.
Data
→ In 2023–2024, crypto compliance-related fines totalled over $5.8 billion globally. NFT platforms contributed approximately 12% of these fines through AML failures, according to data from Coinfirm.
→ The average fine for unregistered operations offering NFT financial products in the EU ranged from €250,000 to €2 million.
→ Several platforms (including LooksRare and Blur) have been referenced in regulatory briefings for inadequate identity verification and suspicious volume patterns.
Licensing bodies no longer rely on intention - they evaluate function. If a platform facilitates asset transfers, holds user value, or earns transaction fees, it is classed as a VASP-equivalent in most major jurisdictions.
Implications
→ Operating without KYC systems may trigger criminal liability for senior management under UK and EU AML legislation.
→ Inability to prove transaction monitoring or SAR escalation processes results in immediate rejection of VASP license applications.
→ Payment processors and banks may suspend services to unlicensed NFT platforms, freezing operational liquidity.
Founders without a compliance roadmap face denial of access to infrastructure, capital, and legal status. Silence or delay is operational malpractice.