A first major step in the right direction
Starting in 2020, Liechtenstein will be one of the first countries to have an independent legal framework for blockchain applications, thanks to its Law on Tokens and TT Service Providers (TVTG). The law is a first major step in the right direction and helps to create legal certainty and minimise the risks inherent in the new technology.
Starting in 2020, Liechtenstein will be one of the first countries to have an independent legal framework for blockchain applications, thanks to its Law on Tokens and TT Service Providers (TVTG). The TVTG creates legal certainty for users and service providers of blockchain applications. It contains minimum requirements for all TT service providers in Liechtenstein. The Government has chosen a broad regulatory approach in order to cover as many ways to shape the token economy as possible. It is a framework law, alongside which other legal rules remain applicable, depending on the design of the token (company law, financial market law, etc.). It thus creates a sustainable basis for the entire FinTech sector as well. With this law, the Government is responding to a great need on the part of all market participants for clarifying regulation. Such regulation must be able to keep pace with technological developments and at the same time maintain the appropriateness of the regulatory framework. The reactions have been positive. We in the Liechtenstein Bankers Association also welcome the law in principle, given that it provides a clear guiding framework in this important field of the future.
Need for additional clarifications
In our view, there is a need for additional legislative clarification in particular for those TT services that are close to the financial market but to which financial market regulation does not apply, and which accordingly do not constitute an activity requiring a licence under specialised laws. The supervisory authorities will also have to provide more detailed guidance with regard to client protection and implementing provisions, e.g. on registration, form templates, and delineation among different categories of tokens.
Blockchain – major potential, but risks should not be underestimated
Blockchain applications have the potential to significantly simplify the core processes of the banking business and thus overall bank management and to make processes more independent and secure. Conventional business models are in danger. However, this great potential for the future is juxtaposed with new risks. Because of its decentralised structure and anonymity, blockchain technology leads to more complex transaction monitoring for financial institutions and authorities, especially in regard to compliance and governance. It is crucial for Liechtenstein and its financial centre to exclude reputation risks as far as possible.
The needs of clients change – the tried and true remains
Blockchain technology can help banks focus on aspects that create utility and value for clients. The bank of the future will in some ways be a digitised platform for the development and distribution of client-specific financial services. However, the human factor will continue to play a central role, if efficiency gains achieved through digitalisation are not to be at the expense of quality of service.
Current developments favour Liechtenstein's solutions
Liechtenstein is taking on a pioneering role with the creation of the TVTG. It is adopting a different approach than the surrounding countries in German-speaking Europe, which are trying to accommodate blockchain applications within the existing legal order. Current developments and initial reactions confirm that Liechtenstein has chosen the right path with its creation of an independent "Blockchain Act".
The TVTG will be a living instrument, requiring ongoing legal adjustments in order to truly meet the needs of the token economy while doing justice to international developments. But it is a first major step in the right direction.