As a state, we must consistently improve our framework conditions for businesses to ensure our prosperity and attractive jobs for the next generation.

Adrian Hasler, Prime Minister

Status Quo

In the spring of 2018 the government of Liechtenstein announced that it is currently working on a law that regulates the blockchain technology (see full document here). In order to create a law which is sustainable, the government decided to not only regulate the blockchain ecosystem but extends the scope of the law to trustworthy technologies. This is because the regulators and the industry are not sure what the dominant design of this technology will look like. At the beginning of September, the long-awaited consultation process of the law was published in order to get feedback and inputs from the industry players in the Liechtenstein ecosystem.

This blog post will outline the most important points of the published draft, explaining its purpose and what it could mean for the future of the ecosystem.

In the last decade, the digitalization has resulted in a high dynamic in the overall economy especially in the financial industry. The Liechtenstein government is convinced that the future welfare of the country can be achieved with the continuous development of business innovation, especially in regard to the newly emerging technology of the blockchain.

For this, the Liechtenstein government introduced the regulatory lab headed by the financial market authorities (FMA) Liechtenstein. The regulatory lab is the central contact point for innovative business models that want to conduct their business based out of Liechtenstein. Because of the openness of the Liechtenstein government and the FMA, it was possible to develop a strong FinTech based ecosystem in Liechtenstein.

The Liechtenstein financial sector has a strong standing in the country and the aim of the new law is to establish a bridge between established institutions and new blockchain applications, especially in regard to the financial sector. It is of strategic importance for Liechtenstein to investigate this technology early in order to provide a regulatory framework and increase the regulatory certainty.

The Token

A token was introduced as a new legal element in order to depict all rights based on trustworthy technologies. A token can include rights like securitized or unsecuritized claims against debtors, membership rights in a company, property rights or limited real rights to movable properties such as diamonds, artwork or immovable properties like real estate or absolute rights such as intellectual property rights.

The law describes that a token is coupled to a container that is equipped with a certain right, as described above. Furthermore, it is possible to create tokens that have an empty container meaning that no right is included in the token, for example like Bitcoin that can only be used as a means of payment.

The Physical Validator

In order to assure that the right which is incorporated in a token is available to the investor in the “online” as well as the “offline” world, the law introduced a new service provider. It is the task of the physical validator to ensure that the incorporated token right can be enforced. If someone wants to issue a token that represents a share in a company including voting and dividend rights it is mandatory to contact a physical validator that ensures that the shares are deposited in a transparent way and that token-holders can enforce the incorporated right.

The Storage

To assure the save and regulated storage of private key that guarantees access to the tokens, the law introduced two new regulated services for the storage of private keys. These are the trustworthy technologies custodian service and the trustworthy technologies protector. The custodian service stores the private key for customers in the customer’s name. In order to ensure a quality standard, these custodian services need to have certain security measures in place to guarantee the safe storage of private keys.

The protector service differs from the custodian service in the way that protectors store the private key of customers in their own name. This service can be compared to a trust service.

The Issuance

Additionally, the new law also regulated the issuance of new public tokens. If a new security-based token (a token that incorporates a certain right) is issued, on the one hand, a physical validator has to make sure that the incorporated right is existing and was not already issued in another token. Furthermore, the token issuer is required to publish information about the token as well as its technology, the incorporated right, and a risk disclaimer. This published information can be compared to today’s whitepaper. A copy needs to be sent to the FMA but no approval of the information is needed. If a private token is issued, that is not publicly traded, these regulations do not apply.

Since the new law has not come into effect until now, it will be interesting to see what feedback the government and regulators will get on this published draft and how the final law will be adapted. It is certain that Liechtenstein is among the first countries in the world to publish such a draft, which will ensure the regulatory safety for companies that employ trustworthy technologies in their business model, which in return will help to establish Liechtenstein as a new center for blockchain and other trustworthy technologies. See the full document here.

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