Disclaimer – The draft Act on Transaction Systems Based on Trustworthy Technology is available in German only.
Liechtenstein is openly supportive towards cryptocurrency and blockchain technology – its banks are handling cryptocurrency investments on behalf of their clients while financial sector of other European countries is shying away. Even its Crown Prince Alois publicly implied interest to use blockchain as a way to improve administrative tasks in his country.
Cryptocurrency currently does not have an official status nor definition in Liechtenstein. Unofficially, according to Financial Market Authority of Liechtenstein (“FMA”), cryptocurrencies are private, purely virtual currencies that are not subject to any control authority and are usually implemented using a blockchain.
As of now, production and use of cryptocurrencies as means of payment are not subject to any licensing requirement in Liechtenstein, as they do not constitute an official currency.
In individual cases, however, there may be a licensing requirement depending on the specific design of the business model, particularly if ICOs are involved. Such cryptocurrencies may constitute financial instruments subject to financial market law in Liechtenstein.
To provide legal clarity and governance over cryptocurrency and blockchain development in Liechtenstein, the Ministry for General Government Affairs and Finance of Liechtenstein published the consultation report on the proposed Act on Transaction Systems Based on Trustworthy Technology, also known as Blockchain Act (“VTG”).
VTG will include provisions on important topics such as the necessary definitions in relation to cryptocurrencies, obligations and registration requirements for cryptocurrency service providers and issuers, and penalties and enforcements.
Following Malta, Liechtenstein may become the second country to date to have legal status of cryptocurrency. Similar to Malta, Liechtenstein considers the potential of blockchain technology to be very high and aims to provide the necessary legal certainty.
Key Points of The Current/Proposed Regulatory Framework
Securities and other forms of financial instruments (together the "Financial Instruments") in Liechtenstein are governed by FMA under various legislations such as the Financial Market Authority Act, Securities Prospectus Act, Asset Management Act, Investment Undertakings Act, Banking Act, and Due Diligence Act.
On a case-by-case basis, a FinTech company may fall outside of the scope of one or more of the above laws upon review by the FMA.
Proposed Framework For Cryptocurrency
As mentioned above, VTG is a blanket legislation that covers a wide range of topics related to cryptocurrency and blockchain. Here is a summary of some of the key provisions:
1. Broad Applicability
VTG applies to not just cryptocurrencies, but to potential uses of blockchain or related technology in general. Instead of referring to blockchain or cryptocurrency, VTG broadly defines Trustworthy Technology, in a technology-neutral term, as “technologies through which the integrity of tokens, their clear allocation to the person in possession as well as their use without an operator can be ensured”.
Token, in an abstract sense, is defined as “information on a Trustworthy Technology system that can represent transferrable claims or rights of membership vis-à-vis a person, rights in rem, or other absolute or relative rights, and that secures the attribution to one or more public keys”.
In short, token represents a container that may contain rights or simply values on a Trustworthy Technology system, which may be on blockchain or other distributed ledgers.
2. Right of Disposal
Public Key is defined as “consisting of a series of characters that constitute a specific publicly accessible address in a TT-system to which a token can be clearly attributed”. Private Key on the other hand consists of a series of characters that, by themselves or together with other private keys, enable the use and transfer of the public key.
A transfer of a token by the person who owns the private key causes a transfer of the right that is represented by the token; hence the holder of the Private Key has the power and right of disposal.
3. General Obligations
All Trustworthy Technology services must be provided only by persons who have met a plethora of requirements, including having full capacity to act, being trustworthy, having a clear organizational structure, and possessing a minimum capital of 100,000 Swiss francs or equivalent collateral.
Trustworthiness in particular exists when a person has not been convicted by a court of fraudulent bankruptcy or similar offenses and there are no other reasons that would give rise to serious doubts regarding the provider’s trustworthiness.
Certain Trustworthy Technology service providers such as token issuers, custodians, and token generators have additional requirements and must register with the FMA.
4. ICO Obligations
ICO, or Token Issuance, is defined as the “public offering of a token”. Token issuers are the “persons who perform the token issuance in their own name or on a professional basis in the name of a third party”. Similar to the requirements found in the Securities Prospectus Act, token issuers must:
- ensure the disclosure of basic information as defined in VTG during the token issuance (e.g. information on tokens, rights, technologies used, purpose description, risks, etc.) and for at least ten years after the issuance;
- ensure the proper execution of the token issuance;
- prevent the repeat token issuance for the same rights;
- note a previous token issuance for a subsequent issuance on related rights; and
- ensure business continuity in the case of disruptions during the token issuance
Trustworthy Technology service providers that do not comply with the obligations set out in the VTG are subject to a fine of 20,000 to 30,000 Swiss francs.
Regulatory Development and Future of Cryptocurrency in Liechtenstein
The regulatory development is already underway in Liechtenstein to legalize and support the current and future development of cryptocurrency, blockchain and related technology.
Similar to proactive countries in the crypto space such as Switzerland and Malta, Liechtenstein is promoting a healthy environment for genuine projects to grow.
* The information contained in this article is for education purpose only and not financial advice. Do your own research before making any investment decisions.