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The regulation of cryptocurrencies in Belgium and Europe is being prepared. Below is a brief account of some legal questions on cryptocurrencies and on the regulation of crypto-assets and other virtual currencies then under development (18 June 2021).
I. Definitions: crypto-assets and cryptocurrencies
The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) define crypto-assets as a type of private asset that depends primarily on cryptography and Distributed Ledger Technology (or similar) as part of its perceived or inherent value, is neither issued nor guaranteed by a central bank or public authority, and can be used as a means of exchange and/or for investment purposes and/or to access a good or service. Among crypto-assets one distinguishes payment/currency-type crypto-assets (cryptocurrencies), investment-type crypto-assets (e.g. security tokens), utility-type crypto-assets (e.g. utility tokens) and hybrid crypto-assets. This note concerns only the first category, cryptocurrencies. Cryptocurrencies or virtual currencies are defined by the 5th Anti-Money-Laundering Directive as a digital representation of value not issued or guaranteed by a central bank or public authority, not necessarily attached to a legally established currency, without the legal status of currency or money, but accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically. The ECB defines virtual currency as a digital representation of value, not issued by a central bank, credit institution or e-money institution, which in some circumstances can be used as an alternative to money.
II. Belgian regulatory aspects of cryptocurrencies
Preliminary remark. The EBA considers that crypto-asset activities do not constitute regulated services within the scope of EU banking, payments and electronic money law, and that crypto-assets fall outside the scope of EU financial services regulation (with only limited cases where they may qualify as e-money). Activities involving crypto-assets do not typically involve regulated financial services under EU law and therefore constitute other business activities of institutions, which must nonetheless have appropriate arrangements to mitigate the operational (including ICT) and reputational risks (e.g. article 74 of the CRD for credit institutions).
Can a cryptocurrency be seen as a financial instrument? Article 2(1) of the Act of 2 August 2002 on the supervision of the financial sector defines financial instruments as those belonging to one of the categories it exhaustively lists. Pure payment/currency-type crypto-assets are unlikely to fall within any of those categories: they are unlikely to be money-market instruments, emission allowances or derivatives, and the same goes for units in collective investment undertakings and transferable securities, the definition of securities expressly excluding means of payment. However, for hybrid or pure-investment-type crypto-assets, it cannot be excluded that some meet the definition of units in collective investment undertakings or of transferable securities; the classification of pure-investment-type crypto-assets as securities will essentially depend on the nature of the rights they confer.
What rules apply to holding cryptocurrency for clients? Can cryptocurrencies be kept on a securities account? Crypto-assets rest on cryptography and Distributed Ledger Technology (DLT) or similar technology. DLT (e.g. the blockchain) allows cryptographic data to be stored and transmitted by entry in an online register, a kind of ledger distributed across several servers. Crypto-assets cannot therefore, by essence, be deposited on a securities account. On the other hand, the private key an investor receives on acquiring a cryptocurrency can be kept. The 5th AML Directive provides an obligation to register with the competent supervisory authority for providers offering custodian wallet services, defined as services safeguarding private cryptographic keys on behalf of clients to hold, store and transfer virtual currencies.
What rules apply to payment (or facilitation of payment) in cryptocurrencies? The ECB does not regard virtual currencies such as Bitcoin as full forms of money, nor as money or currency from a legal perspective. Crypto-assets are not banknotes, coins or scriptural money, and so do not fall within the definition of funds in PSD2 unless they qualify as electronic money under EMD2. Thus cryptocurrencies could be qualified as electronic money, defined as monetary value that is stored electronically (including magnetically), represents a claim on the issuer, is issued on receipt of funds for the purpose of payment operations, and is accepted by a person other than the e-money issuer. These conditions are cumulative, so a crypto-asset issued in a decentralised manner would a priori not meet the definition, lacking a claim on an issuer; but the EBA has given examples of crypto-assets that do meet the e-money definition. In that case, offering payment services relating to e-money is a regulated activity that only certain payment service providers (listed in article 5 of the Act of 11 March 2018, including credit institutions) may carry out.
Investment in cryptocurrencies through various vehicles (funds, ETFs, management, etc.)? No rule is currently provided. It should be noted that the Royal Decree of 24 April 2014 approving the FSMA regulation on the prohibition of marketing certain financial products to retail clients prohibits marketing in Belgium, professionally, to one or more retail clients, a financial product whose return depends directly or indirectly on a virtual currency.
III. Draft regulation of cryptocurrencies
In September 2020 the European Commission published its Digital Finance Package, including a proposal for a regulation on Markets in Crypto-assets (MiCA). The Commission states that this proposal covers crypto-assets falling outside existing EU financial services legislation and that it wishes to protect consumers, with a broad scope so that currently unregulated companies offering crypto services would be impacted: it covers not only entities issuing crypto-assets but also all firms providing services around them, such as custodian wallets, crypto-asset exchanges, trading platforms and more. Crypto-asset service providers will be subject to authorisation. In Belgium, the Council of Ministers of 18 June 2021 approved a preliminary bill and a draft royal decree on the status and supervision of providers of exchange services between virtual and legal currencies and of custodian wallet providers. The preliminary bill aims to allow the FSMA to supervise all providers established in Belgium offering the exchange of virtual currencies for legal currencies, and to prohibit persons governed by the law of a third State from offering virtual-asset services in Belgium. The draft royal decree aims to determine the rules and conditions for registration with the FSMA of virtual-asset service providers established in Belgium, the conditions for carrying on these activities and the applicable supervision.
This article is a translation and a condensed version. Only the French version is authoritative. It is provided for information purposes and does not constitute legal advice.
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