Bitcoin and Ethereum Status as Securities Clarified by Belgian Regulator

Questions about whether digital assets should be treated as securities have lingered for a long time, as investors try to grapple with their classification and the stance of financial regulatory bodies on crypto-assets. Certain cryptocurrency projects have had a run-in with regulatory bodies in their jurisdiction. Ripple Labs, for instance, has been in a legal brawl with the US Securities and Exchange Commission (SEC) since December 2020.

The Financial Services and Markets Authority (FSMA), Belgium’s financial regulator, released a written communication in which it clarified the status of crypto-assets that are offered to the public. The FSMA acknowledged in the released communication that it had received numerous questions about the application of financial rules to crypto-assets. Like every other financial regulator, the FSMA monitors financial activities within its jurisdiction and proposes and enacts laws to regulate the issuance and trade of financial and intangible assets.

Long-Sought Regulatory Clarity on Digital Assets

Belgium’s financial regulator FSMA created a stepwise plan to offer a series of guidelines for the exercise of classifying crypto-assets and says its primary and most basic criteria for classifying crypto-asset is whether the asset has an issuer or not. FSMA says the technology that powers the digital asset is of no relevance in its classification criteria. Crypto-assets without an issuer are not qualified to be called a security or an investment instrument, hence the laws that govern securities – the Prospectus Regulation, the Prospectus Law, and the MiFID conduct of business rules– do not apply to them. Other regulations such as anti-money laundering laws may, however, still apply to these assets if they are used as a medium of exchange.

If there is no issuer, as in cases where instruments are created by a computer code and this is not done in execution of an agreement between issuer and investor (for example, Bitcoin or Ether), then in principle the Prospectus Regulation, the Prospectus Law and the MiFID rules of conduct do not apply.

The Financial Services and Markets Authority (FSMA)

Transferable financial instruments with an issuer and an investment objective will be considered securities. FSMA says assets with an investment objective possess characteristics which include being transferable to persons other than the issuer, the issuer creating a limited number of instruments, the issuer planning to trade them on a market and has an expectation of profit, the funds gathered being used for the general financing of the issuer and the service or the project being developed, the issuer organizing several rounds of sales at different prices, among others.

Analysis of assets will be carried out on a case-by-case basis, and all the mentioned characteristics don't need to be present to be able to conclude that an instrument is classified as an investment instrument, according to the FSMA communication.

Investors in crypto-assets have long sought clarification on the classification of digital assets and the rules that apply to them. The clear example of Bitcoin and Ethereum not considered securities, cited by the FSMA in its released communication, gives investors in these assets a clearer picture of the regulator’s stance and brings an end to the long-held debate about whether Bitcoin and Ethereum are securities or commodities, at least in Belgium. Other regulatory bodies could follow in the footsteps of the FSMA to define clear-cut rules regarding crypto assets and their classification; this way, investor education and protection will improve.

To learn more about Bitcoin, visit our Investing in Bitcoin guide.

To learn more about Ethereum, visit our Investing in Ethereum guide.