Belgium starts consultation on classification of crypto as securities and investment instruments

Belgium holds public consultations to determine if a particular crypto asset needs to be classified as a security, investment product, or financial product. The Financial Services Markets Authority (FSMA), the national financial regulator, said in a statement:

“… FSMA wants to provide clarity while waiting for a harmonious European approach.^[1], When crypto assets are considered securities, investment products, or financial products, and whether they are within the scope of the Prospects Act and / or the implementation of MiFID’s business rules. “

The European Union will finalize the breakthrough market (MiCA) regulation for crypto assets expected in 2024, but the crypto business needs to be clear whether it is within the scope of existing legislation. Regulators say. To that end, regulators have set guidelines for determining which cryptocurrencies may be classified as securities or financial instruments and which laws apply to them.

The guidelines provide a step-by-step plan for determining the classification of crypto assets. The first step is to determine if the crypto asset is “embedded in the device”, that is, exchangeable or substitutable.

According to the guidelines, crypto assets that are not included in financial instruments are not eligible as securities. However, two situations can occur if they are built into the device.

First, these products may represent shares or voting rights in the project, or the right to pay a certain amount.

In such cases, if the goods are transferable, the crypto assets are eligible as securities in accordance with the prospectus and financial products. The Prospectus Act requires crypto asset issuers to issue prospectuses for potential investors.

As a financial instrument, assets must also comply with MiFID’s Code of Conduct. The EU Financial Instruments Market Directive (MiFID) sets out regulatory obligations for investment companies to ensure the protection of investors.

However, if the product is not transferable, the crypto asset is eligible for an investment product and the issuer must issue a prospectus in accordance with the prospectus law, the guidelines state.

Second, the goods may represent the issuer’s right to provide the goods or services.

In that case, if the product has a primary or secondary investment purpose, it will be classified as an investment product subject to the prospectus. However, if the product has no investment purpose, crypto assets are outside the scope of the prospective writing method.

The guidelines describe some aspects that need to be investigated to determine if a product has an investment purpose. Cryptocurrency assets are considered to have an investment purpose if:

“… Securities are transferable to anyone other than the issuer. The issuer issues a limited number of products. The issuer plans to trade them in the market and expects profits. The funds raised will be used for general funding of the issuer and the service or project has not yet been developed. The instrument will be used for payment to staff. The issuer will be used several times at various prices. Organize sales of. “

The guidelines add that although there is no issuer, cryptocurrencies generated by computer codes such as Bitcoin (BTC) and Ethereum (ETH) are not subject to prospectus regulations, prospectuses, or MiFID rules of conduct. rice field.

The talks are open to all stakeholders and investor representatives and will end on 31 July.