Crypto and Blockchain Multi-Jurisdictional Analysis — Part 2: Overview of Regulatory Regime in Liechtenstein
By INGVARR on ALTCOIN MAGAZINE
Overview of regulatory regime for crypto in Liechtenstein
The Financial Market Authority (“FMA”) is Liechtenstein’s primary financial regulatory agency. The official currency is the Swiss franc (CHF). Monetary policy is the responsibility of the Swiss National Bank (SNB). Commercial banks operating in Liechtenstein provide most of the financial services.
Since 1995, Liechtenstein has been a member of the European Economic Area (EEA) and is thus EU-regulation-compliant and has full freedom to provide services in all EEA countries. The FMA has set up an internal competence team, the “Regulatory Laboratory”, which deals with regulation and innovation in the field of financial technologies. At the interface between regulation and the market, the team is the contact point for companies working in FinTech.
Adrian Hasler, Prime Minister of Liechtenstein, emphasized during his speech at the Finance Forum in Vaduz on the 21st of March that “Finance 2.0” is already daily business in Liechtenstein. The state supports the actual technical development. Ongoing initiatives such as the Innovationsclub and the Regulatory Lab have been fostered and collaborated with more than 100 new enterprises in 2017.
There are only a few banks that work with cryptocurrencies. Among them are Kaiser Partner (Schweiz) AG and Bank Frick & Co. AG.
As yet, neither the production nor the use of virtual currencies as a means of payment is subject to any licensing requirements that are governed by specialized legislation. In individual cases, however, there may be a licensing requirement depending on the specific design of the business model.
Liechtenstein has included “virtual currencies” in the latest amendment of its Due Diligence Act. The due diligence obligations codified in the Act serve to combat money laundering, organized crime, and terrorist financing, and apply to providers of exchange services, among others. An “exchange office (bureau de change)” is defined as any “natural or legal person whose activities consist in the exchange of legal tender at the official exchange rate or of virtual currencies against legal tender and vice versa”. “Virtual currencies” are defined as “digital monetary units, which can be exchanged for legal tender, used to purchase goods or services or to preserve value and thus assume the function of legal tender”.
The FMA has issued a fact sheet on virtual currencies like bitcoin. The fact sheet states that virtual currencies are generally defined as a “digital representation of a (cash equivalent) value that is neither issued by a central bank or a public authority” and do not constitute fiat currency (legal tender). However, it is pointed out that virtual currencies are similar to fiat currencies when they are used as a means of payment or traded on an exchange. The production and the use of virtual currencies as a means of payment are currently not subject to any licensing requirement governed by specialized legislation. However, the FMA states that depending on the specific design of the business model, licensing requirements might apply. Business models are assessed on a case-by-case basis. In particular, due diligence required by the Due Diligence Act may apply.
In September 2017, the FMA published a fact sheet on ICOs which states that depending on their specifications, tokens may constitute financial instruments subject to financial market law. In principle, activities relating to financial instruments are subject to licensing by the FMA on the basis of special legislation and may require the publication of a prospectus. In all cases, the specific design and de facto function of the tokens are decisive. Any AML/KYC obligations also depend on the specific design. ICOs should be clarified with the FMA in advance as the FMA distinguishes four types of tokens: security tokens, digital currency, asset-backed tokens, and utility tokens. There may be hybrid tokens.
Beginning in October, the unofficial English translation of the draft law on Transaction Systems Based on Trustworthy Technologies of Liechtenstein (the Blockchain Act) was made available for review. The Blockchain Act represents an attempt to introduce a legal framework for blockchain technology and regulate crypto-related activities.
The draft Blockchain Act introduces definitions of basic terms such as “token”, “public key”, “private key”, “trustworthy technology” (TT)and “token issuance”. Liechtenstein’s approach to regulating blockchain is apparent. For example, the Blockchain Act declares the power and right of disposal of a token which establishes the basis for legal recognition of transactions recorded on blockchain.
The draft Blockchain Act, among others, proposes to establish requirements that will apply to the participants in the infrastructure, so-called “TT service providers”. The token issuer, token generator, depositary, protector, exchange office operator, and verifying authority are named as TT service providers. It has yet to be determined how the TT service providers will interact with each other and what their functions are.
The draft Blockchain Act was released for consultation in August, with the deadline for submitting feedback set for 16 November 2018.
For full document please click here.
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