On the 6th of June 2019, Liechtenstein’s parliament has voted in favor of the Blockchain Act in a first hearing. Most MPs believe the opportunities of blockchain-specific legislation outweigh the risks associated with it. As it’s common legal practice in Liechtenstein, the draft proposal will now go into a second hearing and will have to be approved a second time, before it will officially become Liechtenstein law.
The law has received much international attention from private companies as well as other governments worldwide. Prime Minister Adrian Hasler and Dr. Thomas Dünser, the Director of Liechtenstein’s Office for Financial Centre Innovation, have shared their views on the implications of the new law, the next steps, and the future outlook.
Blockchain Act is just one piece of a bigger puzzle
The Liechtenstein government does not view the Blockchain Act as standalone legislation but as one part of the bigger plan called “Impuls Liechtenstein.” PM Adrian Hasler launched the innovation framework with the strategic goal of improving the private and the public sector’s capacity to innovate.
As the government identified blockchain technology as one of the key drivers of technological innovation over the coming decade, Liechtenstein wanted to answer the fundamental questions to ensure legal certainty for users and businesses.
PM Adrian Hassler says the government, “realized very early on that the impact of blockchain on the financial industry is much more than only the case of Bitcoin. […] Digitalization is one of the important drivers for changing our economy and society. The invention of blockchain has set free a new kind of economy that may have a big effect on existing business models.”
Regulatory framework to define a concept rather than regulating specific applications
The Blockchain Act specifies the rights of token holders and issuers and clarifies what regulations blockchain businesses have to comply with, for example, the custody of tokens or private keys, the separation of the client’s tokens or private keys in the case of bankruptcy, and the application of AML and KYC regulations.
The law does not lay out details for particular applications but provides a legal definition of a general token that is open to all applications of the token economy. It provides the basis of the general token under civil law, and the registration and supervision of the most relevant service providers to protect users. Additionally, the law introduced the concept of uncertificated rights to support the fully digital process of handling security tokens.
PM Hasler and Dr. Dünser point out that the goal of the law was to create the overall regulatory concept. While other countries like Switzerland, for instance, focus on regulating security tokens only, Liechtenstein’s Blockchain Act covers a much broader range of applications and regulates all sorts of service providers, not only those close to the financial markets.
Further legal changes necessary to build out the digital economy
Dr. Dünser explains that the Blockchain Act is a milestone, but it’s the beginning of the journey rather than the end. It will need amendments and further improvements as time goes by. “But our innovation process is bottom-up,” he says. “The ideas about improving the legal framework have to come from the business itself, not from the government.”
In order to create a functioning token economy, other laws will need adjustments as well. The government wants to establish a “purely digital process to issue and transfer security tokens,” including a blockchain-based shareholder register.
While some fully digital applications, such as security tokens and real-world asset tokens, are already legally possible today, others are more challenging. Tokenizing real estate, for example, requires further adjustments to current legislation. The transfer of land requires a physical entry in Liechtenstein’s Land Register, hindering a fully digital process.
Dünser says, “After having established the Token and TT Service Provider Act, the Government will continue to work on the adjustment of our legal system in the context of digitalization.”
PM Hasler agrees, “When the law enters into force, we will have achieved a major goal. But of course, we will stay in close contact with innovative companies in order to find other aspects of the legal framework to improve. From my perspective, we are at the very beginning of a longer development.”
Blockchain Act is complementary to existing EEA regulations
Being a member of the European Economic Area (EEA), Liechtenstein complies to all EEA-relevant regulations, such as the Markets in Financial Instruments Directive (MiFID) that regulates the issuance and trading of financial securities. Therefore, it is possible to passport Liechtenstein-registered securities offerings into other EEA countries.
When asked about Liechtenstein’s role in Europe, PM Hasler says, “We want to solve the issues that we see in Liechtenstein. It would be great if European countries were inspired by our vision and our law. I am convinced that Europe now has a great opportunity to be the leading economic region for the token economy […] Liechtenstein wants to contribute actively to this development in Europe.”
In regards to pan-European blockchain regulations, PM Hasler says there are established financial markets regulations in the EEA, which are relevant for Liechtenstein-based businesses. The Blockchain Act is “complementary” to those. The law was necessary, as the current financial markets regulations leave “questions open at the moment” in regards to blockchain applications.
Future Outlook: A milestone, but the work starts now
Dr. Dünser says the feedback to the Blockchain Act was “very positive” and the number of requests of service providers regarding Security Token Offerings (STOs) in Liechtenstein has “strongly increased” over the last year. He expects this trend to continue when the law finally enters into force later this year.
Besides private businesses, other governments have also been very interested in Liechtenstein’s approach. Dünser says, “I believe that many countries have seen that blockchain is more than only cryptocurrencies and crypto assets and that they will consider this when drafting their own regulation.”
He also points out that the use of tokens for the financing of non-listed companies has been increasing and more physical assets are being tokenized. “Further applications – such as tokenizing intellectual property or art – will follow sooner or later,” he says.
The parliament will discuss the Blockchain Act a second time, but it’s very likely the law will finally get approved. From then onward, it’s up to private businesses to seize the day and use the opportunities provided by Liechtenstein. Likewise, it’s the government’s responsibility to listen to feedback and keep improving the framework.
PM Hasler says, “My vision for Liechtenstein is to ensure the capacity to innovate and to establish practical know-how about this and other technologies in order to seize opportunities and manage risks.”