Liechtenstein-based STOs need to comply with European and national prospectus regulations. The laws will change in 2019, which is good news for small businesses.
Liechtenstein is not a member of the European Union (EU), but part of the European Economic Area (EEA). As the majority of EU financial market laws also apply to EEA countries, Liechtenstein-based businesses are subject to these regulations.
One such legislation is the so-called Prospectus Directive. Like every other EEA country, Liechtenstein is obliged to implement EU prospectus regulations. That means, companies that plan to issue security tokens in Liechtenstein need to adhere to these laws and also to the rules outlined in Liechtenstein’s Wertpapier-Prospektgesetz (Securities Prospectus Act).
EEA Prospectus Directive applies if token volume above CHF 5m
EU law distinguishes between securities that fall under the Markets in Financial Instruments Directive (MiFID) and those that are unregulated. Most security tokens fall under MiFID and are thus regulated financial instruments – EEA-wide.
Whenever that is the case, the EEA Prospectus Directive applies, meaning security token issuers need to draft a prospectus and hand it to the national regulator for approval. In Liechtenstein, the Financial Markets Authority (FMA) is responsible for prospectus approvals.
There are exceptions. If the total volume of tokens issued does not exceed CHF 5m, there will be no need to issue a prospectus. That’s why edeXa, for example, had capped their STO issuance volume at CHF 5m and kept the remaining 80% of tokens in their corporate wallet.
New prospectus laws coming in 2019
EU lawmakers will introduce a revised prospectus law in 2019. The goal is to simplify the current regulatory regime and make it simpler and cheaper for small and medium-sized businesses to issue securities.
The threshold at which member states can exempt issuers of securities will increase to EUR 8m. Moreover, there will be a so-called “EU growth prospectus” – a simplified prospectus with fewer requirements that applies to companies with up to 499 employees.
The new regulation has already been agreed on and will repeal and replace the current Prospectus Directive with effect from 21st July 2019.
Prospectus rules in Blockchain Act similar to current legislation
Besides the EU Prospectus Directive, Liechtenstein-based businesses also have to comply with the national Securities Prospectus Act.
After the FMA has accepted the prospectus, it can be passported to other EEA countries. The only additional requirement is that the FMA informs the national regulatory body in each EEA country, where the issuer attempts to sell the tokens.
The prospectus rules in the upcoming Blockchain Act are to a large extent based on the current legislation. The main difference between a securities prospectus under the current law and the Blockchain Act is that security token issuers are also obliged to publish “basic information about the tokens” to the FMA and in public.
Thus, the introduction of the Blockchain Act won’t bring any significant change to current prospectus rules. What will be a change though, are the new EU rules put into force in July. Especially small businesses will benefit, as it will become easier to access European capital markets.
*The content in this article does not constitute legal advice.