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How are the following key activities in the fintech space regulated and what specific legal issues are associated with each? (a) Crowdfunding, peer-to-peer lending; (b) Online lending and other forms of alternative finance; (c) Payment services (including marketplaces that route payments from customers to suppliers (eg, Uber and AirBnb); (d) Forex; (e) Trading; (f) Investment and asset management; (g) Risk management; (h) Roboadvice; and (i) Insurtech.
Answer ...

(a) Crowdfunding, peer-to-peer lending

Crowdfunding can take different forms, such as investment-based or lending-based crowdfunding. No specific legislation relates to crowdfunding or peer-to-peer lending, although a legal basis may be found in the Banking Act.

According to EU law, a crowdfunding directive will be enacted in the near future. This will also have an impact on Liechtenstein jurisprudence, given the harmonisation between Liechtenstein and the European Union due to Liechtenstein’s membership of the European Economic Area (EEA). In Liechtenstein, funding through initial coin offerings (ICOs) or security token offerings (STOs) is possible under the current legal framework. However, approval by the FMA may be required and in the case of STOs, a prospectus will need to be published. At it currently stands, an ICO will be regulated in Liechtenstein if security tokens are being issued. In general, there is no single act specific to ICOs that regulates crowdfunding, but several existing laws may apply. Also, anti-money laundering and know-your-customer obligations will depend on the specific design of the crowdfunding initiative.

Although no specific act currently applies directly to ICOs, the passage of the TTTL will directly apply to token generating events.

(b) Online lending and other forms of alternative finance

Alternative finance activities include crowdfunding, peer-to-peer lending, ICOs and STOs. As discussed in question 4.1(a), laws such as the Banking Act may apply to such activities. However, there is as yet no overarching Liechtenstein or EU law. Another alternative finance activity is peer-to-peer factoring (non-recourse factoring), which is also listed as a business model on the Financial Market Authority (FMA) website, but for which there is currently no applicable legislation. Specific models will thus be analysed on a case-by-case basis. While non-recourse factoring is not considered a banking business in Liechtenstein, recourse factoring fulfils the criteria for qualification as a crediting business reserved to banking institutions.

With regard to such lending platforms, regulation will depend on how they are structured in detail and on whether crypto-assets or fiat money is being credited. Lending business pursuant to Article 4.1(1) of the Capital Requirements Regulation is based on cash loans, which means that crediting of crypto-assets in general does not constitute a lending business which is reserved for banks. However, in the case of fiat involvement, a banking licence will be required. Providing a platform where users may offer loans in fiat currency may in fact not be possible unless the users have a banking licence. The operator of the platform may also potentially be involved in a banking business, which will require a banking licence.

(c) Payment services (including marketplaces that route payments from customers to suppliers (eg, Uber and Airbnb)

The revised Payment Service Act of Liechtenstein entered into force on 1 October 2019, implementing PSD II. The E-money Act, based on the E-money Directive, is also relevant with regard to payment services.

The application of PSD2 could trigger the need for a payment services licence in the case of many payment service models.

(d) Forex

Forex involves an over-the-counter market in which different market participants, such as banks, can buy, sell and exchange currencies. This is mentioned among the functions of a bank in the Banking Act. The regulations that may apply include the Law on Professional Due Diligence to Combat Money Laundering, Organised Crime, and Terrorist Financing. Exchange bureaux specifically fall within the scope of application of the law (Article 3, paragraph 1, letter f).

For details of cryptocurrency exchanges, which are revolutionising this area, please see question 4.1(e). However, as in the case of forex, due diligence obligations must be respected. The conversion of virtual currencies into legal tender and vice versa is specifically mentioned as falling under the Law on Professional Due Diligence to Combat Money Laundering, Organised Crime, and Terrorist Financing (Article 5, paragraph 2, letter g).

(e) Trading

With regard to cryptocurrency exchanges in particular, as there are various forms of crypto-exchanges, the applicable regulations will vary from case to case. Exchanges which match buying and selling interests (matched principal trading; multilateral trading) with regard to utility tokens against fiat and/or crypto are currently unregulated and require only a trade licence from the Office of Economic Affairs to conduct an operating business. With the enactment of the TTTL, with regard to tokens, certain service providers will have to register with the FMA and will be subject to the due diligence regime, and will no longer have to apply for a trade licence under the Trade Act. However, the settlement in fiat is considered a regulated payment service (especially since the commercial broker exemption is no longer applicable under PSD II when acting on the buy and sell side).

However, if these tokens are traded against the exchange’s own book for fiat payments, this might be deemed a so-called Wechselstube (exchange office; bilateral trading) pursuant to the Law on Professional Due Diligence to Combat Money Laundering, Organised Crime, and Terrorist Financing. This is not a licensed activity; rather, the FMA must be notified of this kind of undertaking and due diligence duties are applicable. If only crypto/crypto pairs are traded against the exchange’s own order book, this is again considered unregulated business activity. However, under the TTTL, this type of exchange will be required to register with the FMA if payment tokens are being traded.

Security token exchanges are fully regulated pursuant to the recast Markets in Financial Instruments (MiFID II) and require an investment firm with a multilateral trading facility (MTF) or organised trading facility (OFT) on top. The main differences between MTFs and OTFs are that all financial instruments may be traded on an MTF, whereas only certain debt instruments may be traded on an OTF (the OTF may also act on a bilateral basis regarding government bonds). An MTF therefore has participants, while an OTF has customers (also due to the discretionary execution). The third difference between the two trading facilities is that an OTF allows discretionary trading/matching rules, as compared to the non-discretionary nature of an MTF.

Lastly, it is possible to set up interfaces or bulletin boards which merely display information of decentralised peer-to-peer exchanges; these have relatively low regulatory implications, depending on the exact business model. Where a decentralised network operates an exchange, it is not clear who may be subject to regulation; this is particularly relevant if security tokens are traded on the decentralised exchange, as such an exchange may fall under the definition of an MTF or an OTF. Depending on the services rendered in connection with a peer-to-peer exchange, certain licence requirements may apply. In any event, prospectus requirements must be adhered to. Usually both matching and settlement are carried out in a decentralised manner on such exchanges, and associated aspects such as the order book and custodial/escrow services (smart contracts) are also decentralised.

(f) Investment and asset management

As Liechtenstein is a member of the EEA, EU regulations and directives are generally applicable (further to an EEA joint committee decision). All banking activities (deposit and loan business) as well as investment services pursuant to Annex I of MiFID II are regulated; as are payment services pursuant to PSD2 and the E-money Directive.

(g) Risk management

Risks in relation to cybercrime are discussed in question 5.2, as the FMA has issued a commentary on this matter. This provides that cybercrime must be included in the IT risk management assessment, so that such risks can be identified early on. Further risks primarily include the use of capital for money laundering or terrorist financing purposes. The Law on Professional Due Diligence to Combat Money Laundering, Organised Crime, and Terrorist Financing and the Ordinance on Professional Due Diligence to Combat Money Laundering, Organized Crime, and Terrorist Financing aim to combat this, and the risk is thus managed through anti-money laundering and know your customer requirements.

(h) Roboadvice

See question 3.1(e).

(i) Insurtech

The Insurance Act is based on the EU Solvency II Directive and the Insurance Distribution Directive, and the distribution of insurance products is a regulated activity.

For more information about this answer please contact: Thomas Nägele from NAGELE Attorneys at Law LLC