Regulation of crypto currencies and ICOs — International comparison

Reg­u­la­tion of cryp­to cur­ren­cies and ICOs are high on the agen­da of gov­ern­ments and finan­cial super­vi­so­ry author­i­ties across Europe. Hard­ly any insti­tu­tion is cur­rent­ly not look­ing into how cryp­to cur­ren­cies and inno­v­a­tive forms of financ­ing such as ICOs and STOs should be legal­ly clas­si­fied or reg­u­lat­ed. How­ev­er, the approach­es and views dif­fer wide­ly. Pas­sive, active and proac­tive approach­es can be observed. Some leg­is­la­tors see the top­ic very crit­i­cal­ly and take a wait-and-see approach or rather only seem to see the risks and dan­gers of blockchain tech­nol­o­gy and cryp­to cur­ren­cies. Oth­er coun­tries, on the oth­er hand, sur­prise with their pos­i­tive and tech­nol­o­gy-friend­ly atti­tude and are cur­rent­ly work­ing on or have already devel­oped their own legal frame­works to enable issu­ing of cryp­to cur­ren­cies and tokens as well as con­duct­ing of ICOs/STOs uti­liz­ing a clear legal basis.

Inter­na­tion­al com­pe­ti­tion for the most attrac­tive and sus­tain­able loca­tions for the boom­ing blockchain and cryp­to scene is becom­ing more and more appar­ent. In this arti­cle, we take a look at the most impor­tant and proac­tive coun­tries that have addressed the issues of reg­u­lat­ing cryp­to cur­ren­cies and ICO/STO. We take a look at cur­rent legal ini­tia­tives and con­sid­er the dif­fer­ences in approach­es and pro­ce­dures between coun­tries such as Ger­many, Liecht­en­stein, Lux­em­bourg, Mal­ta and Switzer­land. What is inter­est­ing is that the small­est coun­tries seem to be the ones that have made the deci­sive head­way.


As the largest Euro­pean econ­o­my, Ger­many is of course also very impor­tant when it comes to token eco­nom­ics, dig­i­tal assets and fundrais­ing through cryp­to cur­ren­cies. Accord­ing­ly, oth­er Euro­pean gov­ern­ments and reg­u­la­tors are also pay­ing close atten­tion to how the Ger­man gov­ern­ment and the Ger­man Finan­cial Mar­ket Super­vi­so­ry Author­i­ty (BaFin) decide to deal with cryp­to cur­ren­cies, ICOs and STOs. At present, how­ev­er, there is not yet much ini­tia­tive or activ­i­ty to be seen on the part of the Ger­man leg­is­la­tor.

For the longest time, the Ger­man gov­ern­ment has only stood out through its inac­tiv­i­ty. There was hard­ly any action on the sub­ject of cryp­to cur­ren­cies and blockchain. Now, how­ev­er, the new CDU/CSU-SPD gov­ern­ment has estab­lished in its coali­tion agree­ment the inten­tion to find and work out a legal reg­u­la­tion for cryp­to cur­ren­cies. By mid-2019, a blockchain strat­e­gy for Ger­many would be worked out in order to posi­tion itself as an attrac­tive loca­tion for the evolv­ing Blockchain indus­try.

On 8 March, it was announced on the web­site of the Fed­er­al Min­istry of Finance that a key issues paper had been pub­lished to clar­i­fy the basis for the reg­u­la­tion of cryp­to tokens. Here an amend­ment of the Ger­man law is announced that is to be opened for “elec­tron­ic secu­ri­ties”. The cur­rent­ly manda­to­ry paper form as the “doc­u­men­tary embod­i­ment of secu­ri­ties […] is no longer to apply unre­strict­ed­ly”, so that the issu­ing can also be done via blockchain/DLT. How­ev­er, this is ini­tial­ly to be lim­it­ed to bonds only, where­by the issue of elec­tron­ic shares will only be dealt with at a lat­er date. With regard to ICOs, it is not­ed in addi­tion to their risks that they do not gen­er­al­ly con­sti­tute secu­ri­ties and there­fore do not fall under exist­ing cap­i­tal mar­ket reg­u­la­tions.

Even the BaFin — the com­pe­tent super­vi­so­ry author­i­ty — has not yet made too many spe­cif­ic state­ments. On 20 Feb­ru­ary 2018, a ref­er­ence let­ter was pub­lished on the sub­ject of ICOs, in which the core state­ment was that tokens could pos­si­bly be secu­ri­ties. Indus­try insid­ers, how­ev­er, crit­i­cized the let­ter to be of lit­tle sub­stance and hard­ly help­ful. In an inter­view with Han­dels­blatt at the end of Octo­ber, BaFin boss Felix Hufeld made it clear that he want­ed a glob­al reg­u­la­tion for ICOs. In Ger­many, accord­ing to BaFin, a “pay­ment token” such as the Bit­coin “Bit­coin is to be clas­si­fied as a super­vi­so­ry unit of account and thus as a finan­cial instru­ment in accor­dance with the Ger­man Bank­ing Act (KWG)”. On the oth­er hand, BaFin is very active in pro­tect­ing investors and warns investors that pay­ment tokens and ICOs can rep­re­sent risks. As report­ed in the Han­dels­blatt, at the end of 2018 the first active inter­ven­tion was made in a vir­tu­al IPO announced and this ICO was banned by BaFin. In some places there had been voic­es that the Bafin had made Ger­many an eldo­ra­do for fraud­u­lent ICOs due to a lack of frame­work con­di­tions — and had thus made scan­dals such as the 100 mil­lion ICO Envion pos­si­ble in the first place.


In addi­tion to its small pop­u­la­tion, the Prin­ci­pal­i­ty of Liecht­en­stein is also known for its flour­ish­ing bank­ing sys­tem. As a non-EU mem­ber and thus an inde­pen­dent play­er, the Prin­ci­pal­i­ty rec­og­nized the poten­tial of blockchain tech­nol­o­gy and cor­po­rate financ­ing through cryp­to cur­ren­cies at a very ear­ly stage and there­fore devel­oped a legal basis for these forms of financ­ing. The core here is the spe­cial­ly cre­at­ed and shaped area of “assets law”. On 28 August 2018, a con­sul­ta­tion report was pub­lished on the planned Blockchain Act (“Act on Trans­ac­tion Sys­tems Based on Trust­ed Tech­nolo­gies (VT)”), the dead­line for which was 16 Novem­ber 2018. Dur­ing this peri­od, com­plaints, rec­om­men­da­tions and ideas could be sub­mit­ted by exter­nal par­ties. As the name sug­gests, the law pur­sues a very com­pre­hen­sive and holis­tic reg­u­la­tion of these inno­v­a­tive tech­nolo­gies, which for exam­ple goes far beyond the Swiss approach. Orig­i­nal­ly, it was planned to pass the law in the first half of 2019. How­ev­er, the feed­back with­in the con­sul­ta­tion peri­od was so plen­ti­ful and exten­sive that more time was need­ed to include or con­sid­er it. At present, the law is expect­ed to be passed in the sec­ond half of 2019, which means that it would prob­a­bly not come into force until the begin­ning of 2020. It is there­fore hard­ly sur­pris­ing that Liecht­en­stein is one of the best places for an ICO on the short­list for many entre­pre­neurs and start-ups.


Also in Lux­em­bourg the top­ic of secu­ri­ty tokens has been addressed. On 14th Feb­ru­ary 2019, a draft law was passed which pro­vides a legal frame­work for the issu­ing of secu­ri­ties via blockchain and dis­trib­uted ledger tech­nol­o­gy. In addi­tion, the exist­ing law was extend­ed in 2001, which now notes that the reg­is­tra­tion and issuance of secu­ri­ties can also be done through DLT and blockchain tech­nol­o­gy. In addi­tion, para­graph 18a states that blockchain and DLT record­ed trans­fers of secu­ri­ties are legal­ly the same as trans­fers between tra­di­tion­al secu­ri­ties accounts.


There is hard­ly a dis­cus­sion about ICOs and STOs in which the Blockchain Island Mal­ta is not men­tioned soon­er or lat­er. No won­der: the sun­ny Mediter­ranean island con­cen­trat­ed ear­li­er than prac­ti­cal­ly all oth­er coun­tries on the poten­tials of blockchain tech­nol­o­gy and since then has endeav­oured to elim­i­nate the legal uncer­tain­ties and open ques­tions by means of a clear legal frame­work.

Prime Min­is­ter Joseph Mus­cat and the respon­si­ble par­lia­men­tary sec­re­tary Sil­vio Schem­bri are push­ing ahead the efforts to posi­tion Mal­ta as “Blockchain Island” at the high­est lev­el. Prime Min­is­ter Joseph Mus­cat nev­er miss­es an oppor­tu­ni­ty to draw atten­tion to the poten­tial of blockchain tech­nol­o­gy and its sig­nif­i­cance for his coun­try as well as for the inter­na­tion­al econ­o­my. At the UN Gen­er­al Assem­bly, for exam­ple, he spoke about the need for inter­na­tion­al coop­er­a­tion, which was nec­es­sary in order to ful­ly real­ize the poten­tial of blockchain tech­nol­o­gy. The organ­i­sa­tion and active par­tic­i­pa­tion of the Mal­tese gov­ern­ment in major blockchain con­fer­ences such as the Mal­ta Blockchain Sum­mit 2018 or the forth­com­ing Mal­ta & AI Blockchain Sum­mit 2019 also speak to the high lev­el of com­mit­ment. In addi­tion, a huge com­mu­ni­ty and ecosys­tem has begun to devel­op here, mak­ing Blockchain Island Mal­ta prob­a­bly the most attrac­tive of all pos­si­ble loca­tions for an ICO. This is also con­firmed by the set­tle­ment of large indus­try play­ers such as the Cryp­to-Exchanges Binance and OkEX.

The laws respon­si­ble for reg­u­lat­ing the cryp­to­graph­ic and blockchain indus­tries were cre­at­ed here ear­ly on. The world’s first legal frame­work for DLT tech­nol­o­gy was drawn up and adopt­ed in Mal­ta in mid-2018, and it final­ly came into force on 1 Novem­ber 2018. In fact, it is a simul­ta­ne­ous res­o­lu­tion of 3 indi­vid­ual leg­isla­tive ini­tia­tives that should posi­tion Mal­ta inter­na­tion­al­ly as Blockchain Island: Vir­tu­al Finan­cial Assets (VFA) Act, Mal­ta Dig­i­tal Inno­va­tion Author­i­ty Act and the Inno­v­a­tive Tech­nol­o­gy Arrange­ments and Ser­vices (ITASA) Act.

The VFAA Act defines the term Vir­tu­al Finan­cial Assets and pro­vides for the estab­lish­ment of 4 dif­fer­ent license class­es for Vir­tu­al Finan­cial Assets. Com­pa­nies must meet strict require­ments and pay an annu­al super­vi­so­ry fee and a rev­enue-depen­dent license fee, depend­ing on the scope of the enti­tle­ment. Par­tic­u­lar­ly note­wor­thy is the VFAA Licence Class 4, with which Mal­ta aims to facil­i­tate and reg­u­late the estab­lish­ment of a cryp­to exchange. With the MDIA Act, the legal basis was cre­at­ed to cre­ate the Mal­ta Dig­i­tal Inno­va­tion Author­i­ty as the super­vi­so­ry author­i­ty specif­i­cal­ly respon­si­ble for the cryp­to- and blockchain area. The ITASA Act, on the oth­er hand, stip­u­lates which require­ments and pro­ce­dures are to be ful­filled for the reg­is­tra­tion and cer­ti­fi­ca­tion of so-called “tech­nol­o­gy arrange­ments”, where­by this term is pri­mar­i­ly intend­ed to cov­er smart con­tracts through to decen­tralised autonomous organ­i­sa­tions (DAOs).


In Switzer­land, the Swiss Finan­cial Mar­ket Super­vi­so­ry Author­i­ty FINMA issued its first opin­ion on ICOs in 2017. How­ev­er, the deci­sion was tak­en not to cre­ate a gen­er­al­ly applic­a­ble law for ICOs, but rather to focus on the type of token or its func­tion issued by an ICO. The clas­si­fi­ca­tion pub­lished in March 2018 also became inter­na­tion­al­ly known. Accord­ing to the clas­si­fi­ca­tion of tokens, there are 3 dif­fer­ent cat­e­gories into which tokens can fall: Pay­ment tokens, util­i­ty tokens, equi­ty tokens.

Cryp­to cur­ren­cies such as Bit­coin, which are used pure­ly as means of pay­ment and have no fur­ther func­tion­al­i­ties, are to be clas­si­fied as “pay­ment tokens”. Util­i­ty tokens, on the oth­er hand, are tokens “intend­ed to pro­vide access to a dig­i­tal use or ser­vice”. And “equi­ty tokens” rep­re­sent assets, which is why this token should be treat­ed like a share, bond or deriv­a­tive finan­cial instru­ment in terms of its eco­nom­ic func­tion.

Any­one wait­ing for Switzer­land to adopt its own blockchain law, how­ev­er, seems bound to be dis­ap­point­ed. At the moment, this is not just a long time com­ing, but it looks as if the Swiss gov­ern­ment is not plan­ning to pass such a law at all. The Swiss approach, on the oth­er hand, is to extend or update exist­ing reg­u­la­tions so that they can also be applied to cryp­to cur­ren­cies, cryp­to assets and all three types of tokens. The clear­est indi­ca­tion of this, in addi­tion to not propos­ing a sep­a­rate leg­is­la­tion or legal frame­work, is the state­ment made by the Swiss Finance Min­is­ter Ueli Mau­r­er at the Blockchain Con­fer­ence Infrachain on 4 Decem­ber 2018 in Berne. As Fin­tech­News reports, he said in the con­text of a high-lev­el pan­el dis­cus­sion “Switzer­land does not need a new blockchain law. It is enough to adapt six exist­ing laws”. These adap­ta­tions should pri­mar­i­ly affect the civ­il and finan­cial mar­ket laws.


The top­ics of cryp­to cur­ren­cies, cryp­to assets, dig­i­tal assets, secu­ri­ty tokens vs. util­i­ty tokens have now reached prac­ti­cal­ly all reg­u­la­tors and finan­cial mar­ket super­vi­so­ry author­i­ties. There is hard­ly any reg­u­la­to­ry author­i­ty that does not cur­rent­ly deal with the ques­tion of whether, how and to what extent these are to be legal­ly clas­si­fied and reg­u­lat­ed. Among all these coun­tries, Switzer­land, Liecht­en­stein and Mal­ta stand out as com­mit­ted play­ers. How­ev­er, dif­fer­ent approach­es are pur­sued: while Switzer­land con­sid­ers an adap­ta­tion of exist­ing laws suf­fi­cient and expe­di­ent, Liecht­en­stein and Mal­ta advo­cate the approach that a sep­a­rate set of rules (“Blockchain Act”) is nec­es­sary.

In addi­tion to its world­wide unique and pio­neer­ing legal frame­work for DLT tech­nol­o­gy, Mal­ta is also favoured by its ever-expand­ing hub on sun­ny Blockchain Island, which has estab­lished itself around indus­try giants such as Binance and OkEX. In addi­tion, there are for­ward-think­ing and act­ing insti­tu­tions here, such as the Mal­tese stock exchange, which is already work­ing on set­ting up and open­ing its own secu­ri­ty token exchange. In addi­tion, Mal­ta is also an EU mem­ber, in con­trast to Liecht­en­stein or Switzer­land, which makes it much eas­i­er to enter the mar­ket in the rest of the EU if you locate here.

About Dr. Jörg Werner

Dr. jur. Jörg Wern­er, born 27 May 1971, attend­ed the law school of the Uni­ver­si­ty of Leipzig and passed his first state exam­i­na­tion in the State of Sax­ony in 1996. After suc­cess­ful­ly com­plet­ing his manda­to­ry legal intern­ship, he suc­cess­ful­ly passed the sec­ond state exam­i­na­tion of the State of Sax­ony-Anhalt in 1998 and was admit­ted to the bar and began to prac­tice as a Ger­man attor­ney (Recht­san­walt) before the court of Magde­burg the same year. He worked as an attor­ney at the Law Offices of Prof. Dr. Fre­und & Kol­le­gen until he formed the firm of Wrede & Wern­er. He was also admit­ted to prac­tice before the Supe­ri­or Court of Naum­burg. In 2001, he moved the firm’s offices to Cen­tral Berlin, where he was admit­ted to prac­tice before the Courts of Berlin. Dr. jur. Jörg Wern­er then com­plet­ed his doc­tor­al stud­ies at the Uni­ver­si­ty of Ham­burg and grad­u­at­ed as a Dok­tor der Rechtswis­senschaften (Doc­tor of Laws).

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