Token economy

Financial Stability Report 2021

total number of business relationships over the last few years, the relatively stable number of fiduciary and fiduciary companies is somewhat surprising. This development suggests that the business environment is changing structurally. While the business environment may have become more competitive, the increase in regulatory requirements is associated with extra effort – and thus revenues – from existing client relationships, i.e. the fiduciary sector may have become more specialized in recent years. In this context, the well-developed financial center in Liechtenstein – including banks, insurances, investment funds, asset management companies and the fiduciary sector – may enjoy a competitive advantage in certain areas due to its “one-stop-shop” approach, particularly in the area of wealth structuring.

Although a recent revision of the Professional Trustees Act (TrHG) has extended the FMA’s supervisory responsibilities in the fiduciary sector, data availability remains an open issue. While the fiduciary sector remains largely self-regulated, with the Liechtenstein Institute of Professional Trustees and Fiduciaries (THK) supervising the duties of the trustees, the new legal provisions – which entered into force in mid-2020 – indeed imply a significant extension of the FMA’s responsibilities and aim at facilitating the prevention of abuse and fraud.17 In this context, governance was a key focus of the revision, and the new law also aims at ensuring the solvency of trustees and trust companies by including a legal obligation of maintaining sufficient financial means. Thereby, the law also includes a mandatory observation of determined principles of accounting according to the Liechtenstein company law (PGR) as well as mandatory external audits. While the respective audit reports have to be submitted to the FMA on an annual basis, the legal revision does not introduce a reporting system for fiduciary companies with regard to prudential indicators, with data availability in the fiduciary sector remaining an open issue even after the submission of audit reports to the FMA in 2023.

On 1 January 2020, the new legislation on service providers for Tokens and Trusted Technologies entered into force (TVTG). The new law aims at defining a legal framework for all applications of the token economy in order to ensure legal certainty for new business models. As a major difference to legal approaches in other countries, the FMA registers service providers such as token generators or people who verify the legal capacity and the requirements for the disposal of a token. Besides the registration process, supervision activities based on the TVTG are mostly limited to anti-money laundering. Importantly, the TVTG is applicable in parallel to classic financial market regulation.

Both the number of entities as well as the quantity of services applying for registration has picked up substantially since last year. The TVTG includes a grandfathering period to persons that already carried out an activity that is regulated under the new law. Those service providers could continue to offer their services without registration until the end of the year

17 For a more detailed explanation regarding the legal revisions, please also see Box 7 in last year’s Financial Stability Report.

Financial Stability Report 2021

2020. During this grandfathering period, a total of 24 entities reported to the FMA that they had already been active in 2019, i.e. intending to make use of the grandfathering period in 2020. In the meantime, 16 of these companies have applied for a registration according to the TVTG, eight of them have successfully registered. In total, 13 entities have successfully registered for 28 services. Additionally, 18 applications (for a total of 30 services) are currently under consideration. The so far registered entities include both classical financial intermediaries (e.g. banks, fiduciaries etc.) as well as “new” players (e.g. cryptocurrency exchanges) in the financial market. With the planned European legislation (Directive (EU) 2019/1937 on Markets in Cryptoassets, MiCA), some service providers currently covered by the TVTG will be comprehensively regulated across the Single Market. The implications for the regulation in Liechtenstein are not yet clear, but will be analyzed in detail going forward.

Financial Stability Report 2021