How to register as a Token-Issuer (ICO /STO) in Liechtenstein

In Liechtenstein, the Tokens and Trusted Technologies Act (“TVTG”), also known as the Blockchain-Act, has been in force since 1st of January 2020. This law creates legal certainty for Blockchain service providers, protects clients from abuse, and validates Liechtenstein as a world-renowned blockchain location right in the heart of Europe. The Blockchain Act regulates 11 different types of TT service providers offering services based on trusted technologies.

How to register as an Token Issuer

In the following, you will learn what it takes to register as a Token-Issuer and how long the registration process takes in general.

General Information

In accordance with Art. 2 lit. l TVTG, a “Token-Issuer” is a person who offers Tokens in their own name or in the name of Third-Parties. In order to register as a Token Issuer, different requirements must be met. The local regulator, the Liechtenstein Financial Market Authority (“FMA”) has also issued guidelines in this respect, which can be consulted.

Before beginning the activity, legal and natural persons with headquarters or place of residence in Liechtenstein must apply in writing with the FMA to be entered into the TT Service Provider Register.

Please note that the FMA generally also requires all registered TT service providers to have adequate business premises in Liechtenstein. In terms of due diligence and data protection, this usually requires some substance in the form of a single office, and one or several employees depending on the business model.

The application and the documents can be submitted in German or English. If any of the required documents cannot be obtained, or can only be obtained with disproportionate effort, equivalents may be submitted instead. Any inability to provide a document must be justified with reference to the facts.

In principle, the registration obligation under the TVTG only applies to so-called TT-service-providers who provide a service for third parties.

The exception is the so-called “own issuer”: this is subject to a registration obligation if the total value of the token issuance exceeds or will exceed the threshold of 5 million Swiss francs within 12 months (in accordance with Art. 12 para. 2 TVTG).

To register as a TT Token Issuer, an application must be submitted with respect to a multitude of aspects:

Firstly, documents must be submitted pertaining to the token issuance, specifically describing how this is technically performed and which TT-System (Blockchain) is utilized. In this respect, the characteristics of the TT-System should be described, as well as a specification of the connection between them and the Token-Issuer or the TT-Service.

Secondly, there should be a description or visualization of all payment flows — in fiat or cryptocurrencies — including the corresponding contractual relationships. In this respect, the FMA would like to see a graphical illustration.

Thirdly, evidence should be provided evidentiating that the business model is not subject to any licensing requirements under the special laws enumerated in Art. 5 para. 1 FMAG. Regarding this aspect, Liechtenstein Lawyers focused on advising in this area are happy to assist. Generally, it would have to be legally analyzed whether the token is considered a “financial instrument” or “e-money”. For ETH (Ethereum) and BTC (Bitcoin), that is clearly NOT the case.

It is important to note that, in the event that the issued Token represents a financial instrument, in addition to the registration as Token Issuer, the preparation of a securities prospectus in accordance with the EU Securities Prospectus Regulation — which is harmonized throughout Europe — might be required.

If applicable, a description of other services provided beyond the scope of the Blockchain Act is required.

Reliablity and Technical Suitability

The members of the governing bodies of a Token Issuer as well as its shareholders, owners, or partners who hold more than 10% of the Token Issuer must each meet the reliability requirements. In particular, this requires having a clean criminal and financial record. If a reason exists that makes a person appear unreliable, an application may be submitted to the FMA to grant leniency in this regard. The FMA has also issued guidance in this regard, which can be consulted.

In general, regarding the reliability and technical suitability, the FMA requires:

• Chart indicating persons with direct and indirect qualifying holdings, stating the amount of the holdings;
• Evidence of the holdings (e.g. extract from the share register).

Reliability

The FMA enumerates specific documents and information, which are required in order to respect the reliability requirement (this is also in accordance with Art. 14 TVTG).

With respect to reliability, it is thus necessary to provide the names, dates of birth, and addresses of the members of governing bodies. Furthermore, the names of the shareholders, members, or owners directly or indirectly holding 10% or more of the company and the amount of their holding must be provided.

For each of these persons, the following documents (each reflecting the current circumstances and not older than 3 months), are to be handed in to the FMA:

• Easily legible color copies of identity documents pertaining to all citizenships (a passport copy);
• Current confirmation of residence from the city/municipality of residence;
• List of residences of the last 10 years;
• Criminal register extracts from all countries in which the person has had a place of residence in the last 10 years;
• Extracts from collections and bankruptcy registers or functionally comparable documents from all countries in which the person has had a place of residence in the last 5 years;
• Where an assessment of reliability has already been carried out by a competent authority in the financial services sector, the identity of that authority and the results of the assessment;
• A signed declaration of any pending criminal and administrative criminal proceedings, as well as bankruptcy and execution proceedings.

Technical Suitability

Taking on a holistic view, all Token-Issuers must be sufficiently technically qualified for the task in question. To meet this criterion, a Token Issuer may draw on the expertise of a qualified third party as part of an outsourcing agreement.

Also with respect to the criterion of “technical suitability”, the FMA has outlined different documents and information, its provision of which it requires.

In detail, this includes:

• The personal details of those responsible for the provision of the TT Service and the name of the responsible member within the management level;
• For each of these persons, easily legible color copies of identity documents pertaining to all citizenships;
• A signed curriculum vitae including relevant training and work certificates or references;
• A written personal reflection by these individuals that conclusively justifies why they believe they are professionally qualified to provide the TT Service. In particular, the nature and complexity of the TT Service provided must be discussed.

Minimum capital

There is no minimum capital requirement for self-issuers. However, third-party issuers must have the appropriate minimum capital or a guarantee of the same value when starting their activity. The applicant must demonstrate to the FMA how this minimum capital is generated (origin of assets). The capital required under company law (e.g. CHF 50'000 for a public limited company) may be counted towards minimum capital under the TVTG.

The minimum capital requirements must be adhered to at all times. This means that the minimum capital under the TVTG may not be used for operational expenses.

Applicants who intend to provide multiple TT Services must meet the highest applicable minimum capital requirement.

The minimum capital requirement that must be met for third-party issuers (in accordance with Art. 12 para. 1 TVTG) amounts to at least:

• CHF 50'000 for Tokens issued with a total value of up to CHF 5 million during a calendar year;
• CHF 100'000 for Tokens issued with a total value of more than CHF 5 million and up to and including CHF 25 million during a calendar year;
• CHF 250'000 for Tokens issued with a total value of more than CHF 25 million during a calendar year.

The FMA has specified, that it requires a balance confirmation of a capital contribution account or blocked account of a bank domiciled in the EEA or Switzerland (not older than 3 months). In the case of a contribution in kind in the form of Tokens, there are further requirements. In contrast to the standard company formation, a valuation must be performed by an auditor or audit firm recognised by the FMA regarding this Token and handed in to the FMA; this can be no older than 3 months. Furthermore, a confirmation by a registered TT-Key or Token-Depositary indicating that the applicant is actually authorised to dispose of those Tokens is required. Evidence of the origin of assets should also be provided.

The FMA may accept equivalent suretyships or guarantees, such as a bank guarantee.

Organisational Structure

Token-Issuers require a suitable organisational structure with defined areas of responsibility and a procedure to deal with conflicts of interest (governance). As part of the organisational structure, envisaged outsourcing agreements must also be presented.

As a rule, the FMA requires the following documents (in accordance with Art. 13 and Art. 25 TVTG):

• A presentation of the internal organizational structure including responsibilities (detailed organisational chart);
• Organisational rules, such as employee regulations, internal directives;
• The disclosure of the fulfillment of the task of the internal audit (alternatively: investigation officer that fulfills the task of an internal audit);
• Written processes for identifying and dealing with conflicts of interests. The FMA would like to see a process structure that can also be set up quickly. These processes should provide evidence as to how conflicts of interest are prevented;
• Written risk management, including risk evaluation. The FMA would like a description of what risks could exist, as well as how they could be assessed and avoided.
• Token-Issuers must have written internal procedures and control mechanisms that are appropriate in terms of the type, scope, complexity, and risks of the TT-Services provided, including ensuring sufficient documentation of these mechanisms (internal control system, ICS). An effective ICS includes written instructions on work processes, as well as regular monitoring of those processes.
• If outsourcing agreements are planned, a description on how the outsourced tasks are to be monitored and controlled;
• An enumeration of the planned outsourcing agreements, including the name of the contracting party, its registered office, and the activities to be outsourced;
• A copy of the drafts of these outsourcing agreements;
• Written statement on the permissibility of such agreements under Art. 27 TVTG.

Moreover, Art. 17 TVTG sets out the Special Internal Control Mechanisms which also apply for Token-Issuers, and which should be ensured in addition to the points listed above.

Token-Issuers must ensure that suitable internal control mechanisms are in place before commencing activities in order to be able to:

• disclose basic information (see below for more information) at all times during Token Issuance and for at least 10 years afterwards;
• prevent abuse with respect to the option on the part of Token recipients to waive basic information;
• carry out Token Issuance in accordance with the conditions of basic information;
• maintain the provided services in the event of interruptions during the Token Issuance (business continuity management).

Token Issuers must keep all relevant records and supporting documents for supervisory purposes for at least 10 years.

Obligation to compile and publish basic information and to report the Token Issuance

Before issuing Tokens, Token-Issuers must carry out the following steps, unless there is an exception in accordance with Art. 31 of the TVTG:

• Provide basic information in accordance with Art. 33 of the TVTG;
• Publish the basic information in a manner that provides easy access to the information;
• Report the Token-Issuance to the FMA.

There are also requirements regarding the form and language of the basic information:

• It must be prepared and published in a way that is easy to analyse and understand, and in German or English.
• It may be prepared and published as one or several documents. If it is published as several documents, the Token Issuer must publish a summary, including information about the Token Issuer and the Tokens to be issued.
• New facts or errors related to the basic information must be listed in an addendum to the basic information.

Please note that Token-Issuers are subject to their own due diligence obligations. NÄGELE Attorneys at Law LLC does not advise on due diligence. The general rule for Token Issuers, in a nutshell, is that, if they process transactions of CHF 1'000 or more, regardless of whether the transaction takes place in a single operation or in several operations among which there appears to be a connection, then the Due Dilligence Act applies.

The duration of the registration procedure depends primarily on the coherence and completeness of the information, as well as the documents provided with the application. After a complete submission of the documents to the FMA, the FMA has 3 months processing time. In the experience of NÄGELE Attorneys at Law LLC, it may take around 2 to 3 months to request or prepare all the necessary documents. NÄGELE Attorneys at Law LLC has already successfully advised and assisted several clients in the registration process — including a well-known Cryptocurrency Exchange.

Costs

Fees for official processing

• The registration fee amounts to CHF 1'500. — , whether the application as a TT-Service-Provider is accepted or rejected;
• Regarding the registration of any additional TT-Service-Providers, the fee amounts to CHF 700. — .

Disclaimer:

All information provided in this article is given without warranty as to its accuracy or completeness. This article is meant for the personal use of the reader only. This article does not constitute legal advice. You must independently seek legal advice in regards to any matter of personal concern.