Regulators in Europe have not put much effort into creating blockchain industry regulations over the past years. That’s changing now. Governments in Liechtenstein, Switzerland and France have noticed the importance of a legal framework for blockchain technology and have announced legislative changes.
At first sight, a regulated blockchain industry might sound like an oxymoron. For many, the techno-anarchic aspects of the technology are its main appeal. They may see regulations as a way to stifle the technology’s potential, many still unknown.
However, new technologies usually call for a solid legal foundation, particularly when it’s on the rise. Otherwise, the legal limbo could stop businesses from investing since the risks can be deemed as too high. Moreover, lack of regulations and legal loopholes open the door for fraud and misuse.
Liechtenstein will introduce its Blockchain Act in 2019
Liechtenstein has set out to become Europe’s blockchain hub. Crown Prince Alois has announced his plans to transform the country into the place-to-be for blockchain businesses.
A cornerstone of his strategy is the so-called “Blockchain Act,” which the government will introduce within the first quarter of 2019. It aims at creating a comprehensive legal framework for the blockchain industry, regulating everything from ICOs to crypto trading.
The primary goal is to create legal certainty and enable blockchain businesses to integrate more smoothly into the traditional economy.
Key elements of the Blockchain Act are the determination of ownership rights, transfer of ownership, a legal framework for STOs and ICOs, and the licensing and business registration of blockchain companies.
The approach seems to work already. In anticipation of the new regulations, blockchain startups and established businesses have set up shop in Liechtenstein.
While the Financial Market Authority (FMA) has processed a total of 30 enquires in 2016, the number had increased to 101 in 2017 and had already reached 50 in early 2018. “We’re even getting calls from entrepreneurs in Japan and the U.S. who are interested in the Liechtenstein financial center,” says Patrik Bond of the FMA.
Switzerland will amend existing legislation
Neighboring Switzerland has its own ambitions to become Europe’s Crypto Nation. The canton of Zug is home to Switzerland’s “Crypto Valley” where blockchain powerhouses such as Ethereum, ShapeShift, Xapo, Tezos, Melonport, and Monetas have established a presence.
The Swiss Federal Council issued a report in December 2018, stating that Switzerland’s rules are suited to accommodate blockchain technology, but there is a need for amendments. Therefore, the Swiss government has announced a wide-ranging blockchain strategy that aims to create a legal foundation for the technology.
On the contrary to Liechtenstein, the Swiss government does not see a need for new legislation. Ueli Maurer, Minister of Finance, says, “Switzerland doesn’t need new special regulations for blockchain. But we will have to amend six existing laws, to include this new technology, that will impact many industries in the future.”
The proposed legislative changes will recognize data as an asset, amend the scope of the Anti-Money Laundering Act, ease the current restrictions on blockchain securities trading and decentralized exchanges, and “create more flexibility” for blockchain applications.
France issued a decree to regulate the use of blockchain in securities management
In December 2018, the French Government has issued decree n° 2018-1226 outlining asset tokenization and the use of blockchain in securities management.
Specifically, the “use of a shared electronic recording device for the representation and transmission of financial securities and for the issue and sale of minibonds.”
The decree follows up on a previous statement posted by the Minister of the Economy and Finance in May of 2018. This statement had the purpose to “make the registration of an issue or transfer of financial securities in a blockchain the same as the book-entry of financial securities.”
But it was only a single statement, without any concrete regulatory and technical specifications.
The new decree closed this gap by providing enforcement rules and regulatory and technical precision. It defines the technical requirements of distributed ledgers used to issue, register and transfer unlisted securities. It also contains provisions related to the pledging of blockchain-based securities.
Although many questions are still left unanswered, insiders have reacted positively to the decree. French Attorney Thierry Vallat posted on his blog that it’s “Christmas for blockchain”.
Liechtenstein, Switzerland and France have noticed the urge to regulate the use of blockchain technology. Such regulations are needed to move the industry out of its current isolation and into the mainstream, and to allow Europe to compete with other markets. The race for technological leadership is on. Businesses compete, and so do governments.