An extract from The Virtual Currency Regulation Review, 3rd Edition
Introduction to the legal and regulatory framework
In Spain, there is no legislation specific to virtual currencies, except for a preliminary draft law launched in February 2020 implementing the Fifth Anti-Money Laundering Directive (see Section IV) and a piece of draft legislation, approved by the government in February 2020, which indirectly relates to virtual currencies, which will be debated in the Spanish parliament in the coming months. The draft legislation includes measures for the digital transformation of the financial system, including the legal framework for a regulatory sandbox.2
In 2018 the Spanish securities regulator (CNMV) and the Bank of Spain issued joint advice on the risks associated with purchasing virtual currencies or investing in products tied to them,3 and the CNMV has issued two other documents setting out its opinion and position on several matters related to virtual currencies. However, only the CNMV has issued a statement to clarify that it has not authorised any prospectus, nor has it exercised any authorisation for, or power to verify, any transaction in connection with cryptocurrencies.4
The Spanish tax authorities have also issued several binding rulings on the tax aspects of activities involving virtual currencies.
Securities and investment lawsi Classification and commercialisation of virtual currencies
The CNMV has unofficially stated that virtual currencies per se should not be considered as securities. However, following reports from the European Securities and Markets Authority and the European Banking Authority (EBA) (both published in January 2019), cryptoassets can be classified into four categories: (1) currency tokens (cryptocurrencies with no rights or investment purposes); (2) security tokens, which usually provide property rights, interest rights or dividends attached to a business; (3) utility tokens, which facilitate access to a product or a service, but do not serve as a payment method for other products or services; and (4) hybrids, which can fall under more than one of the first three categories.
Without prejudice to the above, the CNMV has acknowledged that the offering and commercialisation of virtual currencies can have investment law implications as follows.5Direct marketing
Where virtual currencies are acquired through platforms operating on the internet (exchanges) and through cryptocurrency automatic teller machines (ATMs), the CNMV considers that investors do not actually directly own the virtual currencies, and instead only have rights in relation to an unsupervised exchange or intermediary. As a consequence, purchasers are exposed to the risk of an intermediary becoming insolvent or not complying with basic rules on proper record-keeping, diligent custody and recording of assets, and the correct management of conflicts of interest.Contracts for differences
Entities offering these products should be authorised by the CNMV to provide investment services and meet all reporting obligations and other applicable rules of conduct.Futures, options and other derivatives
If these types of products have been authorised by a regulated supervisor, their active marketing under a public offering by market professionals to retail investors might require a prospectus approved by the CNMV or another EU authority under the passporting arrangements.Specific investment funds and other collective investment vehicles that invest in virtual currencies
These types of vehicles and investment funds should be approved or registered by the CNMV. The CNMV6 has acknowledged that, in accordance with Article 2.1 of Law 22/2014, a closed-ended collective investment scheme can invest directly in virtual currencies, but it has to be registered with the CNMV. In this regard, the CNMV has pointed out that the divestment policies of its participants or partners must meet the following requirements: divestment must take place simultaneously with respect to all investors and participants; and investors and participants must be remunerated according to the articles of association or regulations for each class of shares or participations.
This type of fund cannot be marketed to retail investors.Acquiring structured bonds where the underlying asset is a virtual currency
The marketing under a public offering regime of exchange-traded products and exchange-traded notes requires the approval of the supervisors of an explanatory prospectus that has also been subject to the relevant EU passporting procedure.ii Initial coin offerings
The CNMV7 understands that transactions structured as initial coin offerings (ICOs) in many cases should be treated as issues or public offerings of transferable securities given the broad definition of transferable security under Spanish law.8
The CNMV sets out the following factors as being relevant in assessing whether transferable securities are being offered through an ICO:
- tokens that assign rights or expectations of a share in the potential increase in value or profitability of businesses or projects or, in general, that they constitute or assign rights equivalent or similar to those of shares, bonds or other financial instruments governed by Spanish securities law; or
- tokens that entitle access to services or to receive goods or products, that they are offered referring explicitly or implicitly to the expectation that the purchaser or investor will obtain a profit as a result of their increase in value or some form of remuneration associated with the instrument, or reference is made to its liquidity or tradability on equivalent or allegedly similar markets to regulated securities markets.
However, with regard to point (b) above, if it cannot be reasonably established that there is a correlation between the expectations of a profit or an increase of value and the evolution of the underlying business or project, then the token should not be considered a financial instrument.9
If ICOs qualify as financial instruments, then the regulation contained in, relating to or arising from the Markets in Financial Instruments Directive II, the Prospectus Directive and the Alternative Investment Fund Managers Directive should apply to them.
Even if an ICO does not qualify as a public offer (because it is either aimed at fewer than 150 investors, or involves a minimum investment of €100,000 or a total amount of less than €5 million), if the placement is made using whatsoever form of advertising (including websites in Spanish offering the tokens), an entity authorised to provide investment services should intervene in relation to its marketing.10 The CNMV understands that this requirement is fulfilled if the entity authorised to provide investment services intervenes:
- on the occasion of each individual subscription or acquisition of the securities or financial instruments as a placement agent, broker or adviser, subject to the rules applicable in each case; or
- by validating and supervising the offer in general and, in particular, the information provided to investors, and the placement or marketing procedure used (without an authorised entity having to intervene on the occasion of each subscription or acquisition). With regard to the validation of information, the authorised entity must ensure that the information is clear, impartial and not misleading, and that it refers to the characteristics and risks of the securities issued, as well as the company's legal, economic and financial situation, in a sufficiently detailed manner to allow the investor to make a well-informed investment decision. Likewise, the information for investors shall include a warning on the novel nature of the registry technology and on the fact that the custody of the tokens is not carried out by an authorised entity.
To date, the CNMV has not authorised any ICOs, although it has analysed several potential ICO structures. The action of the CNMV in connection with those projects on the issue of tokens, which could be equivalent to transferable securities, has been limited to confirm that in the event of complying with the requirements set out in the Spanish legislation not be considered as a public offer, the transaction would not require the approval of a prospectus; nor would it be subject to verification or prior intervention by the CNMV, although the participation of an investment firm is necessary.
Banking and money transmission
The Bank of Spain, the Spanish authority responsible for banking and money transfer matters, has not issued any statement or otherwise set out its position on virtual currencies other than in the joint warning issued with the CNMV mentioned in Section I.
According to the joint warning, and although they acknowledge that virtual currencies are occasionally presented as an alternative to legal tender, the Spanish authorities note that the former differ greatly from the latter in that their acceptance as a means of payment of a debt or other obligations is not mandatory, their circulation is very limited and their value fluctuates widely, meaning that they cannot be considered as a sound store of value or a stable unit of account.
In this regard, the advice of the EBA on cryptoassets of 9 January 2019 provides that a competent authority will consider a token to be electronic money if it: is electronically stored; has monetary value; represents a claim on the issuer; is issued on receipt of funds; is issued for the purpose of making payment transactions; and is accepted by persons other than the issuer.11
At present, no virtual currency, including Bitcoin, is recognised by Spanish law as a digital currency, electronic money or as a payment method. The main concern is consumer protection as an important part of the activities related to cryptocurrencies cannot be included within the scope of European regulations for financial services (EDM2 and PSD2) and, in the instances when some activities do fall within their scope, not all risks attached are adequately addressed and mitigated.