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FDI Finance Innovation Strategy

Liechtenstein- Providing Legal Certainty in a Rapidly Changing Fintech Landscape

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Liechtenstein, a jurisdiction well known for its friendly corporate law and providing flexibility to entrepreneurs, is now focused on providing a law designed to unleash the full potential of Distributed Ledger Technology (DLT) and blockchain projects.

Far exceeding the scope of innovations such as bitcoin and its underlying technology, the blockchain provides a DLT tool for both storing and transmitting information without the need of centralised intermediaries. Carrying with it unlimited applications, this begs the question: in a world with a legal framework tailored to notion of centralised institutions, how does one remain legally complaint when implementing decentralised technologies?

Unique Regulatory Environment
Recognising that the road to decentralisation cannot be paved overnight, the Liechtenstein regulatory authority is constructing new solutions, as well as capitalising on existing favourable regulations, allowing for these decentralised systems to flourish in a landscape accustomed to traditionally centralised and regulated intermediaries.

“Liechtenstein’s membership in the European Economic Area (EEA) affords clients access the European Single Market. Due to the country’s size, the lines of communication between entrepreneurs and the regulatory authorities are short, enabling a faster receipt of answers than is possible in most other jurisdictions.”

Liechtenstein’s membership in the European Economic Area (EEA) affords clients access the European Single Market. Due to the country’s size, the lines of communication between entrepreneurs and the regulatory authorities are short, enabling a faster receipt of answers than is possible in most other jurisdictions.

æternity Anstalt CEO, Yanislav Malahov;( left) Prime Minister, Adrian Hasler ( centre) NÄGELE Attorneys at Law, Thomas Nagele

Recognising the wide-reaching potential of this technology, the Principality has made a point to create legislation specifically tailored to a token economy, drafting the Liechtenstein Blockchain Act, or Trusted Technologies Law (TTL). Over two years in the making, with a government consultation report and a draft law spanning 170 pages, it is clear that the Liechtenstein authorities have put an immense amount of thought into this new legislation.

Fundamentally, this law provides an opportunity for DLT focused Entrepreneurs, addressing all aspects of a “token economy.” Instating certain minimum requirements, the TTL provides an easily complied with framework for blockchain projects, while at the same time providing consumers a basis for trusting in DLT based transactions. Instating basic information requirements, prescribing which regulatory authority is responsible for ensuring these requirements are met, and creating specialised roles related to oversight of these systems; the TTL leads the charge towards comprehensive regulatory certainty in the realm of fintech.

Serving functions such as eliminating the need for a general trade license, and establishing standards for exchange service provides, the legislation provides an opportunity to receive licenses specifically tailored to Trusted Technologies systems. Such roles include that of the “Physical Validator,” designed to bridge the gap between the “offline” and “online” worlds by designating a licensed entity for verification that the physical object embodied in the digital token truly exists.

Furthermore, in the realm of tokenised securities, entrepreneurs are able to carry out Security Token Offerings (STOs) with relative ease. Complying with the harmonised EU prospectus regime and having recognised dematerialised securities for over 100 years, Liechtenstein possesses an advantage that other jurisdictions do not have, the ability for security tokens to change hands without the presence of an unfeasible written and signed form requirement.

Local Players with Proven Expertise
Generally, when someone thinks about Liechtenstein, the first thing that tends to come to mind is banking. Inevitably, the regulatory authority responsible for having made banking so credible is the Financial Market Authority (FMA), which serves as the same regulatory authority responsible for carrying out the TTL. In fact, intent on affording these DLT projects the same success, the FMA has created a department solely dedicated to Fintech inquiries.

Local ability to carry out these projects within the existing framework is witnessed by the FMA’s approval of the first ever prospectus for a STO accomplished within the European prospectus framework on August 30th of 2018, an event made possible with the help of Liechtenstein lawyers. Through a meticulous assessment of a both a project’s business model and token structure, and how these interact with the pre-existing legal framework, local law firms have helped hundreds of blockchain and crypto related projects gain access to European markets.

 

This local expertise is not limited to legal minds, but also includes the likes of multiple banks providing solutions related to crypto currencies and DLT based exchange services. Seeing that banking relationships are essential to formation of these companies, providing these unique but highly sought-after services renders Liechtenstein a prime location for carrying out these projects. Banking on the promise of DLT technology and ensuring the presence of high standards with know your customer (KYC) and anti-money laundering (AML), local banks have become a wealth of knowledge when it comes to interaction blockchain based systems.

Actively engaging experienced players such as local law firms, banks, and other accomplished minds in discussions regarding the TTL, the government has gone above and beyond to provide the most comprehensive legislation possible. Acting as first movers on an international scale, these efforts have not gone unnoticed, leading to inquiries from foreign regulators seeking local guidance on how to structure their legislation in a favourable manner.

Focus on Fostering a Community
Aside from the local legislative efforts, community members are focused on the creation of a blockchain community here in the Principality. One example of this is the Crypto Country Association (CCA) of Liechtenstein; which has received support for the government for its efforts in advancing blockchain technology. Gathering the best and brightest local individuals and entities involved in DLT, the CCA focuses on magnification of these efforts both at home and abroad.

Furthermore, the founding of the House of Blockchain in Vaduz, a collaborative effort between NÄGELE Attorneys at Law, LLC and æternity Anstalt, provides a home base for numerous DLT based projects, currently housing 17 tenants. Alongside other venues, such as the Technopark Liechtenstein, the House of Blockchain serves as both an office home, as well as a community center for blockchain related events.

Whether you are looking for a supportive regulatory environment, legal advice, banking relationships, or a blockchain community; all of us here in Liechtenstein look forward to welcoming you to our home tucked away in the all too majestic alps.

For more information: NÄGELE Attorney