Blockchain Legal & News

An introduction to Liechtenstein’s cryptocurrency regulation

Alexia Pollacco 31 Aug 2020

The Principality of Liechtenstein, the small country nestled between Switzerland and Austria, has quickly become a blockchain and cryptocurrency hub thanks to its stable political climate, easy access to banking and one of the most advanced blockchain and crypto regulatory frameworks. This article will outline the basic elements of the country’s crypto regulatory framework and provide key information on the set-up process.

The Token and TT Service Provider Act

Liechtenstein adopted the Token and TT Service Provider Act, the TVTG as known locally, in October 2019. The Act came into force in January 2020, and it is intended to be technology-neutral and encourage innovation, thus ensuring trust in the financial and economic sector. The country’s regulatory framework is intended to remain applicable to future technological developments, thus the Act regulates ‘Trustworthy Technology’ which is defined as “Technologies through which the integrity of Tokens, the clear assignment of Tokens to TT Identifiers and the disposal over Tokens is ensured”.

The Act also provides a definition of tokens as information on a TT system which represents rights, such as rights to membership or property, and which are assigned to one or more TT identifiers. TT identifiers enable the assignment of tokens. However, the Act does not classify tokens, and certain tokens may even constitute financial instruments, in which case financial market laws would be applicable.

Regulation of ICOs

Token issuers with headquarters or places of residence in Liechtenstein that issue tokens in their own name or in the name of a client in a non-professional capacity must register with the FMA if more than CHF 5 million worth of tokens is issued in one year.

TT Service Providers

Liechtenstein’s Blockchain Act provides a list of TT Service Providers which must register with Liechtenstein’s Financial Market Authority (FMA). In order to apply for registration, the applicant must be a person or a company with a place of residence or headquarters in Liechtenstein.

The TT Service Providers are the following:

  • Token Issuers – offering tokens to the public on behalf of third parties. This service could include, for example, selling tokens or awarding tokens as a gift. Examples of this service include carrying out Initial Coin Offerings (ICOs) or Initial Exchange Offerings (IEOs) for clients.
  • Token Generators – This is a technical task which involves inputting a token’s code into a TT system to enable the generation and subsequent intended use of the token.
  • TT Key Depositary – safeguarding private keys for third parties, for example in a safe, and executing transactions for third parties. These services are usually provided by wallet providers. The client would still have access to their tokens as the service provider only keeps a copy of the client’s key.
  • TT Token Depositary – safeguarding tokens for third parties, for example in a wallet, and also executing transactions for third parties. These services are usually provided by crypto exchanges. The client loses access to their tokens as the service provider assigns the tokens to itself, and thus may dispose of the tokens.
  • TT Protectors – holding tokens on TT systems in the service providers’ own name for the account of third parties or to carry out transactions for clients.
  • Physical Validators – identifying who the holder of the token is, and ensuring that the rights granted by the agreement are enforced.
  • TT Exchange Service Providers – the exchanging of legal tender for tokens and vice versa, as well as the exchanging of tokens for tokens. This service could be provided through, for instance, ATMs or online exchanges.
  • TT Verifying Authorities – verifying what is required to dispose a token and whether the disposing party has legal capacity to do so. The service provider might, for example, have to ensure that only persons who satisfy certain requirements may purchase certain tokens. For example, the verifier might look into whether a person buying tokens which represent an alcoholic beverage are of age.
  • TT Price Service Provider – establishing price information based on purchase and sale offers or completed transactions. This service could also be provided by crypto exchanges when publishing token prices which they would have calculated independently.
  • TT Identity Service Provider – identifying who the person who has a right related to a token is, and recording such information in a directory.

Registration Procedure

The registration procedure with the FMA kicks off with a due diligence and appropriateness assessment from our end. Prospective applicants must pay a registration fee of CHF 1500, and if more than one service is registered, CHF 700 must be paid for each additional service. The FMA then takes around three months to process the application.

The licensing process with the FMA in Liechtenstein tends to be a straightforward one when the right guidance and assistance is provided. BCA Solutions is well-positioned to guide any prospective applicants through the process, leveraging its years of experience within the crypto-industry to identify and smooth out any potential pain points.

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