In Liechtenstein, the development of fintech has picked up considerably in recent years. In 2014, almost no fintechs applied for a permit in Liechtenstein but the number of inquiries has increased exponentially. In 2015, the Liechtenstein government and the Liechtenstein Financial Market Authority (FMA) created the so-called Regulatory Laboratory to help innovative fintech companies with licensing and regulatory issues. In 2016, the Ministry of Presidential Affairs and Finance decided to appoint an internal group of experts to deal with the issues surrounding blockchain technology. By 2017, the FMA had been contacted by around 100 fintech companies. Many of these companies were related to blockchain technology. Initially, they were focused on payment transactions. This then shifted to initial coin offerings (ICO).
In 2018, the Liechtenstein government initiated a legislative process by consultation, which eventually led to a motion of the Liechtenstein government to the Liechtenstein Parliament that was approved on 3 October 2019. On 2 December 2019, the Liechtenstein Law of 3 October 2019 on Token and Trustworthy Service Providers (Gesetz vom 3. Oktober über Token und VT-Dienstleister (TVTG), LGBl. 2019/301) was issued and became effective in Liechtenstein on 1 January 2020. Furthermore, on the basis of the TVTG, the Ordinance of 10 December 2019 on Token and Trustworthy Service Providers (Verordnung vom 10. Dezember 2019 über Token und VT-Dienstleister (TVTV), LGBl. 2019/349) was adopted and it also become effective on 1 January 2020.
At first, the focus of most fintech businesses was on payment transactions only. In the recent past, however, there has been a huge demand for ICOs where tokens have been offered for various things (eg, payment tokens, tokens linked to real estate or tokens linked to fungible assets such as currencies or commodities).
As of May 2021, 12 entities have been granted permits by the Liechtenstein Financial Market Authority pursuant to the TVTG. The following licences have been issued whereas some companies hold more than one of these licences: namely as "token issuer", "token generator", "trusted technology identity service provider", "trustworthy technology price service provider", "trustworthy technology key custodian", "trustworthy technology token custodian", and "trustworthy technology exchange service provider".
Currently, there is only one Liechtenstein bank which accepts payments in decentralised currencies.
Since 1 January 2020, the TVTG has been in effect and applicable in Liechtenstein.
Given that the Principality of Liechtenstein is a member state of the European Economic Area (EEA), generally, financial intermediaries licensed by the Liechtenstein FMA may provide their services to other countries in the EEA (EU-passporting). It should be noted, however, that services licensed by the FMA under the TVTG cannot be passported into other EEA countries.
The applicable Liechtenstein provisions implement the Financial Action Task Force (FATF) Recommendations. Hence, the FMA monitors whether the due diligence obligations have been observed by licensed service providers under the TVTG. According to Article 3, paragraph 1 of the Liechtenstein Due Diligence Act (Sorgfaltspflichtgesetz (SPG), LGBl. 2009/047), the following, inter alia, are obliged to observe the due diligence obligations according to the SPG:
The Liechtenstein Financial Market Authority (FMA) issues licences under the TVTG and keeps the register of licensed Trustworthy Service Providers.
The Liechtenstein FMA is the only Liechtenstein competent official body in relation to token and trustworthy technology service providers.
Given that the applicable TVTG has been effective since 1 January 2020 only, there are no such judicial decisions available as of April 2021.
The applicable TVTG has been effective since 1 January 2020 only. According to Article 12 of the TVTG, the following registration obligations with the Liechtenstein FMA apply.
Who Has to Register?
Legal entities or individuals having their registered office or place of residence in Liechtenstein who professionally wish to provide trustworthy technology (TT) services according to the TVTG in Liechtenstein shall apply in writing to the FMA for registration in the Register of Trustworthy Technology Service Providers (Article 23) before providing the service for the first time (Article 12, paragraph 1 TVTG). Furthermore, token issuers domiciled or resident in Liechtenstein who issue tokens in their own name or not professionally in the name of the principal shall apply in writing to the FMA for registration in the Register of Trustworthy Technology Service Providers before commencing their activities, provided that tokens with a value of CHF5 million or more are issued within a period of twelve months (Article 12, paragraph 2 TVTG). Furthermore, since the amendment of the TVTG (LGBL 2021/036), individuals domiciled or resident abroad who wish to provide TT services through the use of physical vending machines in Liechtenstein shall apply in writing to the FMA for registration in the Register of Trustworthy Technology Service Providers before the physical vending machines are put into operation for the first time.
The entry in the Trustworthy Technology Service Provider Register (Article 23) requires that the applicant:
TT agents are exempted from certain requirements (eg, minimum capital requirements) due to the fact that they generally take over distribution tasks. The exemptions are set forth in Article 13, paragraph 1a of the TVTG.
The website of the Liechtenstein FMA provides valuable information regarding the requirements which must be met in order to be permitted to offer services under the TVTG. The Liechtenstein FMA has uploaded a questionnaire which provides guidance as to whether the desired business model will be licensed under the TVTG or not. It should be noted, however, that the result of this questionnaire is only a rough estimate and not legally binding.
The Liechtenstein tax regime has not been amended because of the TVTG. The uniform corporate income tax rate for companies in Liechtenstein is 12.5%.
Prior to the TVTG, the Liechtenstein government and the Liechtenstein FMA created the Regulatory Laboratory to help innovative fintech companies with licensing and regulatory issues. Furthermore, the Ministry of Presidential Affairs and Finance appointed an internal group of experts to deal with the issue of blockchain technology before the TVTG came into force.
Article 1 of the TVTG determines, inter alia, that it establishes the legal framework for transaction systems based on trustworthy technology (TT) and regulates, in particular, the civil law principles relating to tokens, the representation of rights by means of tokens and their transfer. Its purpose is (i) to ensure trust and confidence in digital legal transactions, in particular in the financial and economic sector, and to protect users on TT systems; and (ii) the creation of an optimal, innovation-friendly and technology-neutral framework for the provision of services on TT systems.
The holder of the TT key has the power of disposal over the token. It is assumed that the person who has the power of disposition is also the person entitled to dispose of the token. Any previous holder of the power of disposition is assumed to have been the person entitled to dispose of the token at the time of its possession. If someone is the holder of the power of disposition without wanting to be the person authorised to dispose of the token, they can trust that the person from whom they received the token in good faith is authorised to dispose of it.
The following shall be deemed to be a disposition in accordance with the TVTG: (i) the transfer of the right of disposal over the token, or (ii) the establishment of a security or usufruct right to a token.
The disposal of a token requires that:
If a token is disposed of without a legal basis, or if this legal basis subsequently ceases to exist, the reversal is carried out according to the regulations of the law of enrichment (Sections 1431 et seq of the Liechtenstein Civil Code (ABGB)).
The disposal of the token causes the disposal of the right represented by the token. If the legal effect according to the preceding sentence does not occur by law, the person obliged by the disposal of the token must ensure, by appropriate measures, that (i) the disposal of a token directly or indirectly effects the disposal of the right represented by the token, and (ii) a concurrent disposition of the right represented is excluded.
The disposition of a token is legally binding and effective against third parties even in the event of enforcement proceedings against the transferor, if the transfer (i) was triggered in the TT system before the opening of the proceedings; or (ii) was triggered after the opening of the proceedings in the TT system and on the day of the opening of the proceedings, provided that the transferee proves that they had no knowledge of the opening of the proceedings or was not in a position where they should have had such knowledge if they had exercised due diligence.
In order to enable transfer rights represented and transferred in a token on a TT system, the legal figure of the value right (Wertrechte) is incorporated into Liechtenstein law.
The mode for the transfer of digital assets (value rights) is the entry of the (new) owner into a value rights register specifically designed for this purpose. The entry in the value rights register is equivalent to other modes in "traditional" asset transfers under Liechtenstein law.
The TVTG does not provide for a specific definition of payment token, security token, or utility token. Depending on the specification, tokens may be classified as financial instruments, though, and may therefore be subject to the respective Liechtenstein laws dealing with financial instruments. These may include, for example, tokens that have the characteristics of equity securities or have an investment character. Activities relating to financial instruments are generally subject to legal licensing requirements by the FMA and may be subject to the obligation to publish a prospectus. In any case, the concrete form and factual function of the tokens are decisive. Any anti-money laundering (AML) and "know your customer" (KYC) obligations are also dependent on the respective structure of the tokens. Please refer to 4.3 KYC/AML for further discussion.
The TVTG does not provide for a specific definition of stablecoins.
Cryptocurrencies are not a legal tender in Liechtenstein. That is, one cannot be obliged to accept payment in cryptocurrency. Apart from this, anyone is free to accept cryptocurrency as a means of payment within the limits of private autonomy.
The TVTG does not provide for a specific definition of non-fungible tokens.
Currently, there are five TT service providers registered with the Liechtenstein FMA where custodial exchanges are offered.
Liechtenstein financial market law does not recognise the term "crypto-exchange". With respect to such business models, it must therefore be clarified in each individual case whether a licence is required or not. The exchange between cryptocurrencies and legal tender does not, in principle, require a licence under Liechtenstein law. Nonetheless such exchanges are subject to due diligence provisions.
The exchange between different cryptocurrencies also does not, in principle, require a licence under Liechtenstein law but is similarly subject to due diligence provisions.
According to Article 3, paragraph 1 of the Liechtenstein Due Diligence Act (Sorgfaltspflichtgesetz (SPG), LGBl. 2009/047), the following are obliged to observe the due diligence obligations according to the SPG:
These obligations encompass:
The digital assets and the trustworthy technology services are regulated in the TVTG. Depending on what services are offered in relation to digital assets, certain notifications and registrations with the FMA might be triggered.
There is no specific regulation in Liechtenstein concerning the use of crypto-assets as collateral in transactions.
If providers of storage solutions for cryptographic keys fall within the scope of the TVTG, which took effect on 1 January 2020, they have to fulfil specific requirements (organisational structure, minimum capital requirements, etc), have to register with the Liechtenstein FMA, are supervised by the FMA and are subject to due diligence provisions. If such a provider is not subject to the provisions of the TVTG, its business activities may require a licence under Liechtenstein financial market law depending on its characteristics, its factual design and the nature of its business model.
Subject to subsequent exemptions, issuers of tokens shall, prior to their issue of tokens:
The above obligations do not apply to a public offer of tokens if:
Moreover, no further basic information is to be published in any subsequent public resale of tokens if (i) basic information has already been published, and (ii) the issuer or the person responsible for compiling the basic information has agreed in writing to its use.
Basic information shall include in particular the following details.
Token issuers domiciled or resident in Liechtenstein who issue tokens in their own name or not professionally on behalf of the principal must apply in writing to the FMA for registration in the TT Service Provider Register before commencing their activities, provided that tokens worth CHF5 million or more are issued within a period of twelve months.
If this service qualifies as a TT service in accordance with the TVTG, the relative applicable provisions shall be observed.
For investment funds or collective investment schemes that invest in digital assets the same provisions apply.
The TVTG defines the following persons as TT Service Providers:
Persons domiciled or resident in Liechtenstein who wish to provide TT services professionally in Liechtenstein shall apply in writing to the FMA for registration in the Register of TT Service Providers before providing the service for the first time. The relevant provisions of Articles 12 et seq of the TVTG apply accordingly.
Although Liechtenstein has passed the TVTG, private contractual agreements are still subject to the traditional rules of enforcement under Liechtenstein law. Apart from specific formal requirements for some contract types, the parties to the respective private contractual agreement are free to choose its form. Within the limits of private autonomy this choice has, in principle, no effect on the enforceability of the contract.
The liability of software developers is generally determined by the provisions of Liechtenstein civil law and, in particular, product liability law.
Whether or not running a decentralised financial (DeFi) platform requires a licence and is subject to the respective Liechtenstein financial market law provisions depends on the characteristics, the factual design and the nature of the business model. Accordingly, this can only be evaluated on a case-by-case basis.
Taking an effective security interest in a digital asset (value right) requires adherence to the so-called principle of causal tradition. The latter requires a legally valid title and a so-called mode aimed at establishing the respective security interest. The mode for establishing a security interest in digital assets (value rights) is an entry of the security interest, and in particular the secured party, into a value rights register specifically designed for this purpose. The entry in the value rights register is equivalent to other modes for security interests in "traditional" assets under Liechtenstein law.
In order to transfer digital assets (value rights) an entry of into a value rights register specifically designed for this purpose is required. The entry in the value rights register is equivalent to other modes for security interests in "traditional" assets under Liechtenstein law.
If custodians of digital assets fall within the scope of the TVTG, they have to fulfil specific requirements (organisational structure, minimum capital requirements, etc), have to register with the FMA, are supervised by the FMA and have to adhere to due diligence provisions. Other custodians for digital assets may require a licence under Liechtenstein financial market law depending on the characteristics, the factual design and the nature of their business model.
There are no exemptions for blockchain-based products or services as concerns data privacy. The relative provisions of data protection regulation apply accordingly. Thus, individuals have the right to have their personal data deleted. The right to deletion is not absolute and applies only under certain circumstances. These circumstances are:
The Liechtenstein data protection regulation is to be applied in full and is of considerable importance, especially when processing customer data.
At present, neither the production nor the use of virtual currencies as a means of payment is subject to special legal authorisation requirements. In individual cases, however, such a licence may be required when conducting commercial activities, depending on the structure of the specific business model.
Whether or not providing services concerning the "staking" of tokens requires a licence and is subject to the respective Liechtenstein financial market law provisions depends on the characteristics, the factual design and the nature of the business model.
Liechtenstein Blockchain Act and Major Business Models – from Legal Framework to Reality
The “Alpine Malta” attracted the attention of the international and especially the European crypto-community when it announced it was to be one of the first countries in the world to adopt special legislation on blockchain, namely the Token and Trustworthy Technology Service Provider Act (also TVTG or the Liechtenstein Blockchain Act), which has been enforced from the beginning of 2020, creating one of the world’s first safe and regulated environments for token-related services.
Below we explore how the most common crypto and tokenisation business models are realised within Liechtenstein's national and the broader European legal framework.
Major business models include:
It should be mentioned that every blockchain-related business model is individual and sometimes no licence or registration under the TVTG is required or different requirements apply as the project develops.
It is an advantage of Liechtenstein that, in any case, a project can communicate with the regulator, the Financial Market Authority Liechtenstein (FMA), in advance and submit a so-called supervision request (Unterstellungsanfrage) to be able to obtain official feedback regarding which licences and requirements are applicable to the project.
Fundraising using security or a utility token offering
After intense discussions, the Liechtenstein government proposed including uncertified security or book-entry security with all the functions of a traditional security of public faith, by incorporating new articles into the Final Part of the Persons and Companies law (PGR).
The basis of a genuine book-entry security is an electronic register in which both the issue and the transfer of book-entry securities must be recorded. At the same time, Section 81a of the Final Part of the PGR creates a new interface between the TVTG and securities law. Because the register can also be kept on the basis of a blockchain or trustworthy technology (TT) system. Such systems are particularly suitable for this purpose because they enable a clear and seamless assignment of legal title to each book-entry security and cannot be manipulated.
Consequently, the issuing of securities, and the clearing and settlement of securities transactions on TT systems are considered to be one of the key potential applications for TT technologies.
Behind the security tokens could be various types of traditional securities, such as registered shares, participation certificates or profit participation certificates (the Swiss and Liechtenstein equivalents of non-voting shares), bonds, collective investment scheme units and also new uncertified securities which could be created using tokenisation. Example of these new securities include derivatives as rights to future income, rights to future commissions (Neon/Nash exchange), or derivative security with the features of a structured bond (Crowdli project about real estate investments).
Asset tokenisation models for real estate as well as for other illiquid and quite expensive assets such as collectable cars, art objects, precious metals and stones might look as follows:
Major requirements for token issuance
I – Registration as token issuer
Token issuer registration is needed for the following cases.
Token issuer registration requirements include the following.
II – Registration of prospectus for security tokens
In the event tokenised securities will be offered publicly in Liechtenstein or if the offer shall be expanded within the entire European Economic Area (EEA), a securities prospectus might have to be prepared and published. An offer of securities to the public means a communication to individuals in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe for those securities. This definition also applies to the placing of securities through financial intermediaries and for offers on a secondary market. A securities prospectus is intended to adequately inform the interested public about the purpose of the token and the associated opportunities and risks related to it as a digital representation of a security.
In Liechtenstein as part of the European Economic Area both EEA Securities Prospectus Implementation Act (EWR-WPPDG) and Delegated Regulations (EU) 2017/1129, supplemented by Regulations (EU) 2019/979 and 2019/980 apply to security tokens, which fulfil the three criteria of transferability, standardisation and tradability. Detailed clarifications are provided in the FMA’s instructions and communication to be found at the FMA’s website.
A securities prospectus must be prepared and published if the volume of the token issuance will exceed the CHF1 million threshold over the course of twelve months.
A securities prospectus must be approved by the FMA and published as required by law in order to be considered valid. There is no obligation to publish a prospectus if an exemption applies to the token offering.
Exemptions to the prospectus obligation can be found in Article 1 paragraph 4 of Regulation (EU) 2017/1129 and Article 3 of the EWR-WPPDG.
The most frequently used exemptions are private placements not falling under the description of a public offering and an exclusive approach to qualified investors.
If an exemption relating to the obligation to publish a security prospectus is used, the offer of the token is restricted to the territory of the Principality of Liechtenstein. Though it is possible to “passport” an approved securities prospectus to other countries within the EEA to offer the security tokens, exempted offers of securities to the public should not benefit from the passporting regime.
In any case, a security prospectus may also be registered voluntarily (ie, even if an exemption applies) in order to extend the offer to the whole EEA.
Some examples of security tokens in Liechtenstein include:
III – Basic information and notification for utility tokens
Article 30 of the TVTG contains an obligation to prepare, report and publish basic information, which should include information about the tokens to be issued and associated rights.
An issuer of tokens that are offered to the public is obliged to create and publish appropriate basic information in advance. The corresponding obligation to provide information serves to protect users and is intended to adequately inform the interested public about the purpose of the token issue and the associated opportunities and risks.
The central difference from a securities prospectus is that basic information according to the TVTG must be brought to the attention of the FMA in good time before the token issue; the information must also be published somewhere (eg, on the issuer's website). However, no formal approval of the information by the FMA is required.
The TVTG furthermore states certain exceptions from the obligation to prepare and publish basic information in its Article 31. Such exceptions apply, if all investors waive their right to receive the basic information, if the offering is addressed to fewer than 150 potential clients or if the total volume of the issuance amounts to less than CHF5 million. However, the token issuance still has to be notified to the FMA.
It has to be stated here that a later resale of the token on a secondary market may trigger an obligation to prepare and publish basic information as it might be considered a public offering.
Major requirements for tokenisation platforms
A tokenisation platform is a platform that offers tokenisation services of real-world assets, bringing traditional investments to a digital sphere where they might be offered to a larger target audience. Services offered may reach from the tokenisation of alternative investments to the tokenisation of stocks/stock options.
In order to establish a platform to tokenise assets such as securities, a token issuer registration is required. Besides that, an investment firm licence for security tokens may become obligatory. The relevant requirements, however, are determined by the circumstances of the individual case.
If a tokenisation platform provides services exclusively as a technology provider and a client issues tokens in their own name, a registration as a token generator is required. While this may ultimately seem like another additional expense, the requirements for such a service registration are rather low.
Besides the application for registration with the FMA there are no further major requirements for token generators as there is no obligation to supply additional capital in order to start the company’s operations.
Registered token issuers and/or generators in Liechtenstein include:
Crypto-exchanges and custodians
Crypto-exchanges depending on their technical realisation may fall under the following service provider categories under the Liechtenstein Blockchain Act:
In addition to the above-mentioned registrations, the crypto-exchange may also fall into certain categories defined by EU legislation if security tokens are offered for trading.
Prior to the application for registration with the financial regulator, there are certain requirements which crypto-exchanges have to meet and which will be checked by FMA.
First of all, personnel, management and shareholders holding 10% or more of the company’s shares have to be reliable in terms of bankruptcy and criminal law. Additionally, the company itself has to feature a corporate structure with defined areas of responsibility including procedures for dealing with conflicts of interest and written internal proceedings with control mechanisms.
In order for the service provider to start its operations, a certain amount of minimum capital must be raised and kept throughout the entire time of business activity. This amount of minimum capital ranges from CHF30,000 for exchange service providers conducting transactions within the range of CHF150,000 to CHF1 million within one calendar year to CHF100,000 for larger transactions. The sole provision of depository services, whether it be token or key custody, will also require a minimum capital of CHF100,000 disregarding any turnover figures.
Examples of registered service providers in Liechtenstein
Finally, it must be noted that the registrations presented above are those under Liechtenstein law. Due to the fact that there is no unified European legislation, services that are registered in Liechtenstein may in principle also be offered within the entire EEA taking into account the applicable legislation and the regulator’s position in the customer’s country.
However, it is not possible to "passport" the actual registrations to other countries as it is the case with financial services under EU directives.
Outlook on the TVTG and European MiCA proposal
The crypto industry is constantly growing and changing and the entire industry is experiencing high demand for all kinds of crypto-related instruments. In the recent past, therefore, not only has the number of spot transactions in crypto-assets increased, but corresponding options or futures transactions as well. In addition to that, as the market grows, new businesses, for which there had not been any need in the past, become established. Examples of this include certain token and key depository services, or the tokenisation of voluntary emission allowances to name just a few.
Furthermore, it is to be expected that further new company foundations will make use of the possibility that exists in Liechtenstein to contribute the company’s minimum or share capital by crypto-assets. Since “Amazing Blocks AG”, as the first company within Liechtenstein to be established in August 2020 with a contribution in ether instead of cash, a few companies have now started to follow this example.
It is also to be expected that the market will continue to grow and the numbers of service providers will increase – especially within the Principality of Liechtenstein – since companies here experience optimal circumstances to raise and scale their crypto-business activities. The TVTG’s high level of regulatory certainty and direct communication with the FMA also contribute to this crypto-friendly environment.
Finally, the European legislature has also recognised these trends and will create a uniform legal framework for regulating the crypto industry throughout Europe with the new regulation on Markets in Crypto-assets (MiCA). Currently, this regulation is expected to become effective at the end of 2022.
This still-to-be-established regulation is, to a large extent, congruent with Liechtenstein’s TVTG legislation which has been in force since 01 January 2020.
The new MiCA regulation aims to catch so-called asset-reference tokens, e-money tokens, stablecoins and utility tokens as well as certain crypto-asset service providers. It should be noted that security tokens are not covered by MiCA but will still be subject to MiFID II (Directive 2014/65/EU) as they feature more characteristics of traditional securities.
Additionally, MiCA’s pilot regime will contain the possibility to request certain exemptions from specific requirements embedded in EU legislation, which will constitute a so-called sandbox approach.
Overall, this approach should lead to regulatory certainty within the crypto space in Europe and therefore to a further increase of trust in distributed-ledger-technology services.