The approach to regulating cryptoassets has been varied throughout Europe, to say the least. To name a few examples, since January 2018 Gibraltar has required firms carrying out business in or from Gibraltar, which relate to distributed ledger technology, to be authorised; Germany requires custodian wallet providers to be authorised as investment firms, and earlier this year, we discussed the FCA’s plans to extend the UK regulatory perimeter to cover utility and exchange tokens. To add to this collection of regulation, on 3 October the Liechtenstein government announced the passing of the Token and TT Service Provider Act (TVTG) which it claims is the first “comprehensive regulation of the token economy.” The new law regulates civil law issues in relation to client protection and asset protection, while also establishing supervision of various service providers in the token economy. It also includes measures to combat money-laundering by requiring service providers to meet money laundering and terrorist financing (AML/CTF) rules. Further, the TVTG aims to create certainty around the regulation of tokenisation by providing a legal framework for the entire scope of application of the token economy, instead of only regulating specific applications of tokenisation such as Initial Coin Offerings or specific cryptocurrencies. It also includes a definition of “token.” The TVTG is intended to have far-reaching implications beyond just the financial services sector.
However, a more consistent approach to regulating cryptoassets may soon be in sight, at least within the European Union. Valdis Dobrovskis (EU Commissioner for Financial Services) has recently stated that “Europe needs a common approach to cryptoassets” and that the European Commission intends to propose new legislation for this purpose. His statement follows a January 2019 report by the European Banking Authority advising the Commission that, typically, cryptoassets fall outside the scope of EU financial services regulation.
Further consistency across the EU is likely to be achieved once the Fifth Money Laundering Directive (MLD5) is implemented across EU member states in January 2020. Whilst not itself requiring cryptobusinesses to be regulated, MLD5 will extend certain requirements, such as know-your-customer checks, to cryptocurrency exchanges and custodian wallet providers, thereby bringing a certain level of legitimacy to the token economy. Whilst this will set out minimum standards across EU member states, some jurisdictions (at least the UK and Germany) are planning to “gold-plate” the requirements, meaning the scope of application in these jurisdictions will be wider than required by the MLD5.
Although it has other things on its mind at the moment and we’re running out of time for a 2019 consultation paper, the UK’s Treasury is also meant to consult at some point on potential changes to the regulatory perimeter to bring in cryptoassets that have comparable features to “specified investments”, and explore how exchange tokens might be regulated if necessary.
In short, regulation is finally playing catch up. Watch this (crypto)space.