Cryptoassets in England, Germany, Switzerland and Malta - a comparison

Cryptoassets in England, Germany, Switzerland and Malta - a comparison

Friday, 16 August, 2019

Kamila Geremek

The first work on a cryptographically secured chain of blocks was described in 1991, but it wasn’t until the first decentralised cryptocurrency Bitcoin, which was created in 2009, skyrocketed in value in 2017, that this technology caught the attention of everyone, including governments. As usual the law has been lagging behind the situation within the industry. It is evident that something needed to be done with regard to this (not so) new technology that initially presented unlimited opportunities as well as several risks.

The short summary below explores how England, Germany, Switzerland and Malta have reacted to the introduction of cryptoassets on to the market. The various types of classifications will be explained as well as how these tokens have fitted into the established regulatory regimes which is reflective of the governments’ attitude towards all issues concerning crypto.

England and Wales

The FCA (Financial Conduct Authority) has categorised cryptoassets into three distinct categories; security tokens, exchange tokens and utility tokens. Security tokens are those which meet the definition of a specified investment. In contrast to ESMA (European Securities and Markets Authority) which focuses on whether the token provides rights, this definition focuses on whether the tokens have the same characteristics as specified investments. A full list is provided under the RAO (Regulated Activities Order), however, the FCA identifies common specified investments that are relevant to security tokens; shares, bonds and debentures, warrants, certificates representing certain securities and units in a collective investment scheme. In the UK, FSMA (Financial Services and Markets Act 2000) makes it a criminal offence for a person to carry out a regulated activity unless they are an authorised person or exempt. A regulated activity is an activity of a specified kind carried on by way of business and relates to an investment of a specified kind (those defined under the RAO). Furthermore, it is also a criminal offence for a person to offer to the public, meaning an offer to the public that is not made to qualified investors and made to more than 100 people, or deal in transferable securities without a prospectus that has been authorised by the FCA. Therefore, if a token is categorised as a security token then the necessary authorisation will need to be obtained from the FCA.

Exchange tokens are not recognised as legal tender in the UK and despite them sometimes being purchased for investment purposes due to their volatility, this alone does not mean that they are regulated. However, upon the implementation of the fifth money laundering directive, which will come into effect regardless of the outcome of the Brexit negotiations, the scope of the directive will cover all tokens in relation to; exchange between cryptoassets and fiat currencies, exchange between one or more forms of cryptoassets, transfer of cryptoassets, safekeeping or administration of cryptoassets and the sale of cryptoassets. The FCA recognises that some designated investments or financial instruments derive their value from cryptoassets, and these should not be rendered unregulated. Therefore, the FCA is currently in the consultation process for this policy update.

Utility tokens are viewed as vouchers, despite them being traded on crypto-exchanges, and are not regulated unless they fall within the definition of e-money. E-money is electronically stored monetary value as represented by a claim on the electronic money issuer, which is; issued on receipt of funds, accepted by a person other than the issuer, and not subject to exemption. E-money is regulated under the EMRs (Electronic Money Regulations) and is also a regulated activity under the RAO when carried out by credit institutions, credit unions and municipal banks. The FCA also recognises that stablecoins could fall under this definition and thus also be regulated. However, not much further guidance is provided on this as the classification of stablecoins as e-money would need to be on a case by case basis.

It is misleading to state that exchange and utility tokens are unregulated as there are various pieces of general law such as consumer protection regulations or the consumer contracts regulations which may apply, depending on their use. Furthermore, firms that carry out unregulated activities may still be subject to some FCA rules, like the Principles for Business and Senior Managers and Certifications Regime for individuals.

Although many companies may already have been operating on these rules already, having regulatory guidelines takes away any uncertainty. The guidelines fall in line with existing norms and match the recommendations that the FCA received from the industry. Furthermore, by allowing blockchain firms to participate in the FCA’s regulatory sandbox, it shows that they are willing to let companies test innovative propositions in the market with real consumers, which is a welcomed approach.


The Government’s views and approach to cryptocurrencies is ambivalent. Whilst there is an awareness of the progress in the digital world, which is an ever increasing dynamic, there are also concerns of the inherent risks which has at times made their regulation of tokens more stringent than in other jurisdictions.

Under German law, securities receive several definitions across various pieces of legislation. BaFin (Federal Financial Supervisory Authority) in its classification letter states that whether a token is classified as a security within the meaning of section 2(1) and 2(4) of the WpHG (The German Securities Trading Act) or section 2 of the WpPG (German Securities Prospectus Act) is on a case by case assessment. Similarly, for a token to be classified as a unit in a collective investment undertaking within the meaning of section 1(1) KAGB (The German Investment Code) or a capital investment within s1(2) of VermAnIG (The German Capital Investment Act) it also requires a case-by-case assessment.

BaFin stated that one of the prerequisites for a security is the embodiment of rights in the token which led many to raise questions on whether it is possible that any contractual claims in a token would qualify the token as security and lead to no sperate category of utility tokens. Not only does this not correspond with the administrative practice across other European states but it also presents various issues in regard to uncertainty and thus it is urged that BaFin provides a more distinct classification of tokens as guidance for its national and international companies.

There is also some lack of clarity on the applicability of the current regulatory regime of tokens. Firstly, securities would need a BaFin authorised prospectus, however, none of the annexes are tailored to tokens. Secondly, the GwG (German Money Laundering Act) which adopts most of the AMLD (Anti Money Laundering Directive) differs because it has defined the term “person trading in goods” as a person who trades in goods on a commercial basis irrespective on whose account or in whose name they trade. However, a uniform definition of goods does not exist and therefore it is difficult to say whether tokens would be classified as goods. Thirdly, with respect to market abuse monitoring, the WpHG extends the scope of MAR (Market Abuse Regulations) to include goods and foreign means of payment but the definition of goods does not include services, copyrights and rights of use meaning utility tokens are beyond the scope of the legislation. Finally, trading institutions where tokens qualify as financial instruments means they meet the characteristics of an MTF (Multi-Lateral Trading Facility) which has far reaching regulatory consequences for the operator who would have to be subject to licensing requirements under the KWG (The German Banking Act). It is these legislative loopholes which have created a difficult regulatory environment for blockchain and cryptocurrency businesses to develop in the German market.

BaFin qualifies cryptocurrencies as units of account which was a legal term introduced into the KWG. It is an exclusively German approach which is broader than the definition of a financial instrument provided under EU Law. In the Higher Regional Court of Berlin, it was ruled that Bitcoin was not a unit of account and thus not a financial instrument. The court very openly opposed the administrative practice and position taken by BaFin but with not much impact due to it being a mere criminal judgement, and thus remained wholly ignored by BaFin. This creates several regulatory issues in a cross-border context but also presents a regional disadvantage for companies operating in and marketing to Germany as certain commercial transactions will now be subject to licensing. There is also not much clarification provided by BaFin in regard to utility tokens which can have a payment function and thus fall under this definition, however they can also be structured in a way that they are not.


FINMA (Swiss Financial Market Supervisory Authority) categorises tokens into payment tokens, utility tokens and asset tokens, but it also recognises that the classifications are not mutually exclusive and that hybrid tokens can fall under more than one of these categories. Under Swiss law, securities are financial instruments which are either certified or uncertified securities, derivatives and intermediate securities that are standardised and suitable for mass trading. In its guidelines, payment tokens are not categorised as securities and utility tokens are only securities if they are not used for the sole purpose of conferring a digital access right to an application or service.

Activities relating to tokens which qualify as securities may trigger the Swiss securities dealer licence requirements under the Swiss Stock Exchange and Securities Trading Act, the Swiss trading platform regulations under the Financial Market Infrastructure Act or Swiss prospectus requirements.

If a company engages in any activity which constitutes it as a financial intermediary, it will be subject to anti-money laundering provisions. This will be specifically applicable to crypto trading platforms, however, the issuance of payment tokens as well as wallet providers will also be subject to these provisions and require supervision by FINMA.

Under the Swiss banking act, the professional acceptance of deposits from the public requires authorisation from FINMA. However, Switzerland has created a good environment for the promotions and development of fintech companies active in the blockchain-cryptocurrency sector, as evidenced by the ever-expanding crypto valley in the Zug region. Firstly, the innovation area (sandbox) exemption allows for no bank authorisation as long as the amount does not exceed CHF 1 million. Secondly, the safekeeping of tokens is not considered to be a deposit business if the balance transferred solely for safekeeping is held on blockchain and can be attributed to the individual client. Thirdly, there is the potential for the introduction of a fintech specific authorisation in the future which would be better suited towards these types of new businesses. The latter is now under perusal of the Swiss legislator. The process seems to be carried out very swiftly and it is entirely possible that the new regulations will be in place by the beginning of 2020 already.


Malta’s digital innovation framework sets out four possible categories of Distributed Ledger Technology (DLT) assets; electronic money, financial instruments, virtual tokens and virtual financial assets. A VFA is any form of digital medium recordation that is used as a digital medium of exchange, unit of account or store of value.

The Virtual Financial Assets Act sets out a test to determine whether a crypto asset is a VFA, which is assessed by a VFA Agent. Firstly, if it is ruled to be a virtual token then it is outside of the scope of the regulation. This is a token whose sole purpose is for the acquisition of goods or services, either solely within the DLT platform or within a limited network of DLT platforms. However, just as noted above for England and Wales, these tokens may still be regulated under consumer protection laws. Once determined that it is not a Virtual Token then it will be assessed whether the asset falls within the scope of existing financial services regulation as either a transferable security, e-money, money market instrument, financial derivative or unit in a collective investment scheme, each of which have their own qualities defined by legislation to guide the VFA Agent in making his assessment.

Once classified as a VFA, the issuer must fulfil a fit and proper test and meet certain specifications as well as appointing the following functionaries; agent, systems auditor, a custodian, an auditor and a money laundering reporting officer. The VFA Act is a welcomed progressive piece of legislation that provides investors with the right level of protection without being too onerous on the issuers. Market participants in the blockchain and cryptocurrency industry can also benefit from a higher degree of legal certainty, than in other jurisdictions, which is why Malta has been branded as “crypto island”.


Despite ESMA’s best efforts to implement a uniformed regulatory framework for the regulation of cryptoassets, it seems that European countries have taken varied stances on this new disruptive technology. Whilst there seems to be a common acceptance that tokens can take the form of security, payment and utility, the regulations of these tokens do vary in different member states and countries generally. Countries like Switzerland and Malta have been very accommodating to cryptoassets whilst Germany has been a reluctant host with various legal loopholes that create an uncertain marketplace for the development of blockchain and cryptoassets. One thing that is clear that there will be winners amongst those different approaches and the winners will be those countries which recognise that technology’s potential and resolve the legal or regulatory issues most efficiently.

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