Financial Crime World

Liechtenstein Sets Clear Regulatory Guidelines for Cryptocurrency Exchanges

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The Principality of Liechtenstein has made significant strides in regulating its cryptocurrency market by introducing the Blockchain Act on January 1, 2020. This legislation provides a comprehensive framework for the use of blockchain technology and virtual assets, aiming to build trust in the token economy and prevent financial crime.

Key Provisions of the Blockchain Act

Registration and Licensing

  • Virtual asset service providers (VASPs) are defined as “trustworthy technologies” (TT) service providers, which includes cryptocurrency exchanges.
  • TT service providers must register with the Financial Market Authority (FMA).
  • Registration requires compliance with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations.

Know-Your-Customer (KYC) Protocols

  • TT service providers must adhere to strict KYC protocols.
  • This ensures that customers are properly identified and verified before engaging in transactions.

Token Definition and Regulation

  • Tokens are defined as information representing claims or membership rights, rights in property, or other absolute or relative rights.
  • The law introduces the concept of a “token container model” (TCM), where a token serves as a container for various types of rights.
  • Security tokens can be exchanged on regulated secondary markets, including centralised crypto exchange platforms available in Liechtenstein.

Transaction Integrity

  • A physical validator verifies that the tokenized right represented online exists and the person claiming to possess it offline is the lawful owner.
  • This ensures the integrity of transactions.

Impact of the Blockchain Act on the Token Economy

  • The law aims to accommodate the development of the token economy by allowing for innovative blockchain-powered solutions while providing legal certainty for various business models, including tokenized pre-existing rights.
  • The Civil Code has been amended to permit the token world to take precedence over the real world in situations where tokens exist to express various types of rights.

Industry Expert Advice

Industry experts and companies looking to establish a presence in Liechtenstein’s cryptocurrency market are advised to familiarize themselves with the Blockchain Act and its regulations, which provide a clear roadmap for compliance and innovation.