Initially conceived as a study on anti-competitive practices in the art market concerning potentially harmful investment behaviors in the secondary art market, this research ultimately adopted a more technical approach to art investments. It focuses on the evolving landscape of DLT-based investment forms in art and their regulation in the European Union and the U.S. The DLT, characterized by its decentralization and transparency, offers a new paradigm for asset management and ownership. Especially its contrast to the traditionally less regulated art market creates a rich ground for comprehensive legal analysis.
The research project starts from the following observation: In the face of increasing inflation rates and global political as well as economic turmoil, investors have been looking for alternatives to securities and bonds to store value. Among those asset classes benefitting from this trend is art. Record-breaking results at auctions as well as a quick market recovery following the pandemic have stirred the interest of a growing number of investors in this form of alternative investment, which promises stability in times of economic uncertainty. Technological advancements, particularly in DLT, have further facilitated access to art investments. In particular, concepts like "tokenization" and "fractional ownership" have dismantled traditional barriers, inviting a wider audience to partake in what was once a rather exclusive domain. It is through the division of high-value assets into smaller fractions and their tradability as well as traceability on a blockchain that art as an investment opportunity comes within reach of small and medium-sized investors.
With a growing target group of providers offering art-related investment services, the question arises to what extent art is regulated as an asset class. Traditionally, securities and bonds are safeguarded by stringent regulations ensuring transparency and investor protection. However, the art market, known for its opacity and discretion, presents a stark contrast. The longstanding practice of confidentiality in art transactions effectively veils critical information about previous and current sales. This lack of transparency leads to a deficit in essential data, making it challenging for investors to accurately assess risks in the art market.
This dissertation investigates whether art in its different manifestations as an emerging asset class falls within the ambit of existing financial instrument regulations in the EU and the US. It questions whether the current regulatory framework adequately addresses issues such as due diligence, risk disclosure and conflict of interest in the context of alternative forms of investment. To this aim, not only is the compatibility of the MiFID framework with the presented investment methods thoroughly examined, but also more recent regulatory approaches, such as the DLT Pilot Regime or MiCAR, are put under scrutiny.
The study also explores the potential for regulatory reforms that could enhance transparency and investor confidence in the art market. In this context, it is crucial to understand that while DLT presents opportunities for increased transparency and accessibility, it also poses unique challenges in terms of legal categorization and investor protection. The research aims to unravel these complexities, providing a comprehensive legal analysis that is integral to the sustainable growth of DLT-based art investments in an increasingly digitalized world.
