The increasing propagation of blockchain applications has already resulted in problematic areas, such as open questions related to customer and asset protection as well as the misuse of this technology for money laundering or other criminal purposes. Such issues should be addressed by means of clear regulations. As blockchain technology is also actively used in Liechtenstein, the government wishes to clarify which requirements will apply for important activities on TT systems (TT services) with this Law. To do so, not only legal certainty is created but customer protection is also improved and unanswered questions in the application of the applicable laws, in particular in the area of due diligence obligations, have been clarified in order to ensure compliance with international standards and extensive and effective fighting of money laundering.
The Law on Tokens and TT Service Providers defines a legal framework for all applications of the token economy in order to ensure legal certainty for many current and future business models. In particular, this involves the essential aspects of a token economy such as generating and storing tokens, and not on the regulation of activities relating to the financial market, such as a stock exchange for payment tokens.
For securities to be represented in a token on a TT system, and transferred there, via a physical document without any detours, the legal concept of the book-entry system (Wertrecht) has been accepted in Liechtenstein law, and at the same time the interfaces between the securities law and TVTG has been created. Book-entry securities are dematerialised securities where the functions of a certificate can be replaced by entry into the book-entry register.
Because of the enormous potential of the “token economy” for large parts of the economy, the government hopes this Law will increase legal certainty for users and service providers to support the positive development of the token economy in Liechtenstein. It therefore does not only face risks that may exist today, but also meets the needs of market participants for more legal certainty in connection with TT systems.
The first reading of the TVTG by the Liechtenstein Parliament has taken place in June 2019. The TVTG shall enter into force after the second reading in October 2019.
Moreover, there is currently legal uncertainty regarding business models on blockchain systems that are not covered by financial market legislation but nonetheless carry out activities that are very close to the financial sector. With the Blockchain Act, the Government strives to define the minimum requirements for these activities on blockchain systems and have them registered by the FMA.
The legal classification of elements on blockchain systems is another focus of this proposal. The Blockchain Act defines the term “token” as a new construct to enable the transformation of the “real” world to blockchain systems while ensuring legal certainty, thereby opening up the full application potential of the token economy. The introduction of the legal construct of the “token” in Liechtenstein law requires that the legal consequences – such as ownership, possession, and transfer – must also be legally defined.
Due to the great potential of the token economy for large parts of the economy, the Government intends for this law to strengthen legal certainty for users and service providers in order to support the positive development of the token economy in Liechtenstein. The Government is thereby also responding to the need of market participants for greater legal certainty in connection with blockchain systems.
The consultation report can be obtained from the Government Chancellery or at www.rk.llv.li (Vernehmlassungen). The consultation period ends on 16 November 2018.