THE LEGAL FRAMEWORK OF ART INVESTMENTS – THE APPLICABILITY OF EU and US INVESTOR PROTECTION REGULATIONS TO THE ART MARKET

In the face of increasing inflation rates and global political as well as economic turmoil, investors are looking for alternatives to securities and bonds to store values. Among those asset classes benefitting from this trend is art. Record-breaking results at auctions, a quick market recovery following the pandemic as well as stable compound annual growth rated of the art market have stirred the interest of a growing number of investors in this form of alternative investment which promises stability in times of economic uncertainty. This trend is furthermore spurred by technological advancements; especially DLT-based business models add to the practicability and accessibility of investment models. For the art market, which previously used to be an investment option reserved rather for high-net worth individuals, the digitalization of values brings the opportunity to address new market participants. As an example, concepts such as the “tokenization” of artworks and “fractional ownership” invite a broader public, who would otherwise hardly have access to this asset. By extending the offer to invest in an artwork to many instead of just to a single collector, the costs for each individual investor are reduced to only a share of the actual sales price. Accordingly, art has become a widely recognized alternative asset class, which is constantly compared to conservative forms of investment, such as stocks and bonds. Against this background, the question arises as to what extent art is regulated as an asset class. The importance of an in-depth analysis of the applicable investor protection rules becomes even more apparent in consideration of the opacity of the art market, which also accounts for a reason why this sector has been only scarcely addressed by legal academia so far. The relatively new practical accessibility of the art investment market stands in stark contrast to the lack of available information on the traded properties. The deep-rooted tradition of discretion in art trades continues to shroud a cloak of silence over essential data on past and ongoing sales, with the result of there being an insufficient informational basis for investors to predict price developments. This dissertation project aims to shed light on the opaque structures of art investments and examine the currently applicable level of investor protection rules in direct comparison to that in traditional securities markets. The jurisdictional scope of this paper extends to both, the financial market laws of the European Union as well as of the United States of America. In this context, also the question will be raised as to how art investment instruments can be categorized from a legal point of view, in particular, whether they fit into the existing framework of financial instruments.