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How are the following key technologies in the fintech space regulated and what specific legal issues are associated with each? (a) Internet (e-commerce); (b) Mobile (m-commerce); (c) Big data (mining); (d) Cloud computing; (e) Artificial intelligence; and (f) Distributed ledger technology (Blockchain, cryptocurrencies)
Answer ...

(a) Internet (e-commerce)

As part of the European Economic Area (EEA), Liechtenstein implements EU legal acts and, with regard to e-commerce, has implemented Directive 2000/31/EC through the E-commerce Law. ‘E-commerce’ involves the digital processing of transactions between businesses and consumers and also between businesses. The approach to e-commerce reflects the principality’s favourable attitude towards traditional companies, albeit in the digital realm. Thus, companies that focus on e-commerce can also benefit from a favourable tax regime and free access to the EEA and the Swiss market.

In comparison to other EU member states, especially German-speaking ones, Liechtenstein is much more liberal in its approach to e-commerce and m-commerce. In particular with regard to competition law, the principality is an attractive e-commerce location. In neighbouring countries, restrictive competition laws allow companies to offer only a limited amount of services.

With regard to e-commerce payment solutions, the E-money Act and the Payment Services Act also apply. The former relates specifically to the activities of e-money institutions and the protection of those involved in the e-money business; while the latter regulates payment institutions that provide payment services on a professional basis.

(b) Mobile (m-commerce)

M-commerce is closely related to e-commerce, as both allow individuals to conduct transactions online. M-commerce is a sub-category of e-commerce, which allows people to purchase on the go using their mobile devices. The same principles apply.

(c) Big data (mining)

As in the rest of the EEA, the collection of big data is regulated by the General Data Protection Regulation (GDPR), which leaves some questions open to national law. In Liechtenstein, these issues are regulated by the Data Protection Law. Big data allows companies to detect patterns and trends, but this has significant implications with regard to privacy. The GDPR is thus intended to protect consumers and outline whether and how their personal data can be processed. The GDPR is discussed in further detail in question 5.1.

(d) Cloud computing

The same issues that arise with regard to big data are at play regarding cloud computing, as the use of cloud computing services presents the same risks with regard to data protection.

(e) Artificial intelligence

Artificial intelligence (AI) itself is not regulated. However, depending on the designated business plan, roboadvice and/or AI may be qualified as a form of asset management (eg, ancillary securities service) if financial instruments are involved.

Ultimately, the regulation surrounding any automated platform will depend on the type of token being traded. Bitcoin itself is not a security, but the Liechtenstein government is moving towards classifying tokens issued in token sales that meet certain requirements (eg, that represent a financial instrument) as transferable securities pursuant to the recast Markets in Financial Instruments Directive, thus subjecting those particular tokens to regulation (security token offering).

Therefore, any kind of AI applied to the trading of officially recognised transferable securities is thus subject to regulation by the authorities. Conversely, any AI applied to the trading of utility or commodity tokens does not require a licence from the FMA. Again, whether AI is regulated will depends on the underlying business case; AI itself is not regulated.

(f) Distributed ledger technology (Blockchain, cryptocurrencies)

On the regulatory front, the new Tokens and Trusted Technologies Service Provider Law (TTTL), which will regulate certain companies based on ‘trusted technologies’ such as distributed ledger technology and blockchain technology. Through the TTTL, the government aims to support and monitor the fintech sector, while also regulating it accordingly. This approach both promotes and assists the industry, while at the same time avoiding uncontrollable growth. Ultimately, this should attract new crypto companies by enhancing legal certainty.

Liechtenstein has included virtual currencies in the latest amendments to its Law on Professional Due Diligence to Combat Money Laundering, Organised Crime, and Terrorist Financing pursuant to the EU Anti-money Laundering Directives. The due diligence obligations codified in the act aim to combat money laundering, organised crime and terrorist financing, and apply to providers of exchange services, among others. An ‘exchange office’ (‘bureau de change’) is defined as any natural or legal person whose activities consist of the exchange of legal tender at the official exchange rate or of virtual currencies against legal tender, and vice versa. ‘Virtual currencies’ are defined as “digital monetary units, which can be exchanged for legal tender, used to purchase goods or services or to preserve value and thus assume the function of legal tender”. Pursuant to the report and Motion 2016/159, the most notorious example of such a virtual currency is Bitcoin.

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