Binance is considered to be the number one among the crypto exchanges. Thanks to political and economic stability as well as to the recently introduced Blockchain Act (to be enacted in early 2019) Binance decided to team up with Liechtenstein’s crypto exchange LCX. In Ms. Yanina Petrovskaya’s interview with Dr. Matthias Niedermueller, lawyer of the project discussed the main factors that influenced this decision.
We do not pretend the text version is perfect since it is just a transcription of the conversation. Neither does it constitute any sort of legal advice.
Dear Matthias. Welcome to Satoshi.fm. So we are starting this program about Liechtenstein regulations and the LCX Binance exchange and would be just happy to discuss these classic questions with you in simple words about regulation, LCX Binance in Lichtenstein and so on. It would be nice if at the beginning you could introduce yourself as a lawyer and tell us more about the country and regulations.
OK thank you very much. I’m happy to be here. I can give you a short update on my person. I’m Attorney in Liechtenstein since 2006. Since then I am accredited to the Liechtenstein Bar Association and did a lot of litigation the past and also one main part is company law and financial market law. Along with this actually we also came to Blockchain law which just became step by step more interesting for the entire country. We’ll come to this point in a minute.
On the country itself.
For those who don’t know Liechtenstein is a tiny country located in the heart of Europe between Switzerland and Austria. We have about 40 000 inhabitants and each day about the same amount of people come to Liechtenstein to work as commuters from Switzerland, Germany, Austria, because Liechtenstein is one of the highest developed areas and has a very developed Banking and financial system.
The financial market is a very attractive workplace already since years and it has a very functioning system of company law, attractive taxes etc. The country itself has close ties with Switzerland and also Austria and the EU. Liechtenstein is a member of the European Economic Area and has applied the principles of free movement, free capital movement etc. Liechtenstein has full access to the entire European market. This is one of the major advantages. On the other hand Liechtenstein has a very stable economy and stable currency, it uses the Swiss franc and has the attractive union with Switzerland. Liechtenstein is the overlapping between Switzerland and the European Economic Area. It is one of the connecting parts, the country has been very stable, AAA ratings and the princely family is one of the important parts of the country which always was looking on the long run and with foresight for development. This was already the case in the past with Foundation law. This is now also the case in terms of new technologies such as the Blockchain Law. So it is one of the most attractive areas to do business. We have a very stable court system and other legal system. Every person coming to Liechtenstein can be assured if there is legal certainty and that his rights will be safeguarded.
So I would just come to the Blockchain Act and outline how it developed and what would be the main content. As already mentioned the interest into blockchain technology was already there a few years ago. The Liechtenstein government saw that this could be the groundbreaking technology that would remain for the future rather than something for the short term. So the government decided to put together a working group to find out what the best way would be to regulate such area and to regulate it to persist and stay. Technology develops further new technologies or new applications may come. So it was an approach to find something that is in a broader sense regulating an entire new area. Based on this there was quite some work between where all the market but this is where it lost, the most people could get their input not only from blockchain side but also from the financial markets sides. The aim is to connect the existing financial market with the new technologies. So in two years there’s been a working group developing this Act and this summer there was a presentation of the draft law and nowit is also published and available for anyone to review and comment until the end of November. The plan is to enact the law in the quarter one of the next year. It will go to Parliament and early next year. The Blockchain Act is quite an interesting piece of law and never in history there’s so much interest in a law. I can’t talk for countries, but in Liechtenstein definitely there hasn’t been any bigger interest in a new law than this one. The Blockchain Act regulates the entire Token economy which should form the basis for a complete new economy system which is based on Blockchain technologies or similar technologies. The idea was not to regulate ICO, not to regulate certain single technologies but to put it on a broader basis and to ensure that it covers most of the possible applications. It institutes several roles which can be used for service providers and it provides a legal basis for transforming every possible right that you can imagine into a digital form and then transfer it between parties. The really revolutionary part is that it doesn’t limit to any sort of asset, but it has unlimited applications to each possible asset. And it is therefore also not called to Blockchain Act it’s called the Trusted Technologies Act. The working title is Blockchain Act, be. It should also be abstract from technologies and it shouldn’t find a solution for transferring assets without the financial market intermediaries. This new act provides a regulation for the intermediary free transition of funds and assets. I mentioned the rules for the digitalization of assets. Then there are rules for transfer of assets. Then also standards for service providers that have to be met and also measures for ensuring enforcement of rights. What is very remarkable is that for the first time the token itself is also regulated as the legal Institute.
So that’s very interesting because according to my knowledge very few countries might have said something on that’s…
Yes, it makes it very interesting. You have a new legal institution called a token as a container model where you can put in every possible right a bundle of rights you can imagine. So it has vast applications. You could put it a loan. You could put in a receivable, put in whole shareholder rights you can put in voting rights whatever you can imagine. So this is quite revolutionary. This took some time for development. I think it makes sense to regulate it on a broader approach so that it was the law is not outdated once it is enacted. All of this naturally has only one aim. To bring legal certainty to an entire market and brings the opportunity to institutional investors to participate in the market. So far on the surface of the Blockchain Act. I can’t go deeper into some more details, questions because it has so many applications that it’s very difficult to address it all.
Well, absolutely and that and it’s not easy. The theme of this interview with you just kicked off our audience. Of course, if they’re going to have detailed questions they could either read the Act itself which is in German but still already public hearings procedure works. It’s also a very big deal in the professional work of legislator. So absolutely. Maybe it switched to some other questions which was really interesting for the audience when, for example, the ICO still remains a very interesting, we mean the attracting investors were using for let’s say grown up companies.
What’s the current approach to ICO in general for utility and security tokens? What would it look like under Blockchain Act? Was it is enacted?
Okay. Thank you for that. Indeed ICO is a very interesting part of the fund raising for projects. It is also a way of getting the distant assets created. So for instance the law divides between creation of a token and the issuance of token. So we have different regulations on that, because not every token issue accreted will be subject to an ICO to publish issuance. Under the current law as always the existing financial market laws apply to the ICO. In the end and just as a technology means of issuance of certain rights and we’ll always have to look through what is the content of these rights that are issued in the token. Also under the existing law if you would issue something that would be considered as a security or financial instrument, the current laws of financial market would apply such as, for instance, prospectus registration. So we would always review on case to case basis whether the financial market laws apply or not. This issue of viewing rights on some homepage would not be subject to any financial market law. But you could still issue a token of those viewing rights or participation rates in whatever meeting and etc. So it depends on what the content is. Utility tokens, for instance. If they are not considered as a financial instrument the Blockchain Act will step into this because sometimes it is quite unsatisfying that no regulation would apply or that there is an empty space. So the Blockchain Act will regulate the means of applying the new technology and also regulate and set standards for ICO. These are requirements for the market providers to service providers so that they have to fulfill certain requirements, which should build trust in such an economy. I think the ICO itself is always dependent on what the token contains. So I think that’s a main message.
Yes, absolutely correctly. Just to sum it up right now, if you rather have a security token in most likely financial markets, we will need a prospectus and may be also the dealer’s license that could be out of the point in the Blockchain Law, just in simple words the procedure will get less complicated for issue of the security token.
Yes, it will be regulated, the issuance process will be regulated. I think you have to have certain minimum requirements.
Why we actually wanted to make this interview, we wanted also to discuss the regulation for exchanges because of the whole LCX Binance story. Of course it would be interesting to you to try to find what are the major regulations for exchanges right now, what would it look like for the future? Just in simple words. What are the major advantages for exchanges in Liechtenstein and also for issuance of securities token in the future?
For exchanges it would matter what sort of tokens would be traded. If you trade something that is not subject to the financial market law like at the moment, it would be no regulation. There will be certain rules defined such as custodian, protector, exchange provider or a pricing provider. Roles will be defined in the new law and it clearly defines and gives legal basis for every participant. You have to trust a process you’re dealing with. So that’s in general for the exchanges. If an exchange would trade any financial instrument it would have to apply for a respective license. The Blockchain Law at the end gives in addition the opportunity to be able to trade all sort of tokens. And if these tokens also contain financial instruments in addition financial market laws apply. The Blockchain Law fills the gap that currently is existing and gives this whole business a new basis. I think that would be the summary in short for exchanges. So there will be rules for exchanges defined which have to be fulfilled. So you have certainty that your assets are safe.
I would like to ask you why LCX Binance has chosen Liechtenstein? I mean maybe mainly because of the new Blockchain Act, or there are other important points, which were also considered in Liechtenstein?
One of major points is liberal financial market legislation, the heart of Europe. Very good location, good service providers. I think these are some of main parts. Blockchain law was also something very important and also tax issues do matter a lot, because in Liechtenstein, for instance, there are no capital gains taxes. Trading of securities would be not taxable in Liechtenstein. This is something that could be very effective in particular if you trade any rights that are participations for securities. Then in general I have to mention that i am only the legal advisor of LCX. So any more detailed questions will have to be answered by the CEO. He would also be happy to do that. LCX looked at several countries in Europe or outside of Europe, because in this business location would not matter in the end. But you have to choose the best location for the overall business and provide services from this location to the world. The overall package of Liechtenstein in the heart of Europe was just compelling and a clear call to go there. The same goes in my view also for Binance. We were talking together for a while on the project and also Binance could see that this is a very attractive hub for finance, for the development of blockchain and in particular naturally to the Blockchain Act to come was one of the key factors to decide to go to Liechtenstein.
That’s great. I think we’re going to have also another interview with the CEO of the exchange just to get a general overview why Liechtenstein. But you gave perfect answers. There are very interesting questions for our audience still what would be the timeline just in general approach for listing of the security token on LCX Binance exchange?
Definitely. One LCX special project which addresses the future crypto exchange and we are confident that this will happen. Definitely this year. Maybe in the next one-two months this could be effective. I cannot say any more details on that, but this is something that will be active in the short term. In terms of LCX also cannot give nore details, but I can tell the listeners in the next two months there will probably be several products launched. So this year there will be quite some movement on that in terms of trading of security tokens. These are particular questions which would have to leave for CEO, because this is the main part of our business. We want to keep this for the time being not give out too many details at the moment.
Okay. Sure of course it’s a sort of commercial secret information, it’s just important for our audience to understand that maybe in a couple of months they would be able to list security tokens in Liechtenstein which already sounds like a great idea, because as far as we understand that would be mean let’s say a listing for trade with the European economy area.
Yes, it will be very interesting. First thing I think what you have to bear in mind is that the whole process of issuance security tokens, then a listing process. That everything should be up and running. So overall naturally LCX will also select in detail, which securities can be traded. There will be a selection process, because it aims to have highest quality and to address institutional investors.
It will be created back down once. When you have more details on the listing procedure and the criteria for those tokens, which would like to be listed and then we will have another interview or publish an article or something together.
There is also news channel LCX on Telegram which could be used to be really up to speed immediately. We’re naturally happy to also further interviews to the broad audience.
That’s just great. I think when publishing the next version of this interview, would also include necessary links, also the Telegram channel, so it’s easier for the audience to ask questions directly. In the last couple of months you will have maybe all these products published there, would be easier to get general overview and information on this and get security tokens listed.
Okay. That’s great, we’re just approaching the time limit of the interview. It was really interesting to talk to you. Thanks a lot for answering the questions. I think it’s interesting time to be right now in this country, in all developments and we’re going to have more talks. We’ll see you on the interview maybe on other materials.
Definitely there’s more to be announced in the short period of time. I think you should stay tuned. We hope more interesting developments.
Thank you for your time.
You’re welcome. Thank you very much. Thank you.