STO regulation and law in Belgium

There is no official legal qualification at hand that applies to tokens, and therefore no specific set of rules and regulations that applies to tokens. How tokens will be qualified depends on the underlying right they represent. STOs would likely qualify as securities and therefore fall under the regulatory framework that applies to securities. Similar to the situation in Germany, if the rights represented by the tokens are like those of shares, bonds and certificates, the tokens qualify as securities from a regulatory viewpoint. STOs that qualify as securities would notably fall under prospectus regulations.

Exemptions for STO issuers apply if the offer is (i) either addressed exclusively to professional investors or (ii) to fewer than 150 non-professional investors in each EU member state or (iii) which is aimed at investors who can acquire securities from a minimum amount of EUR 100,000 per investor per offer or (iv) which have a minimum denomination of EUR 100,000 or (v) offers with a total value of EUR 500,000 or less (over a period of 12 months), insofar each investor is only allowed to invest EUR 5,000 maximum, and insofar all documents relating to the offer mention the total value and the maximum value per investor.

There are two additional exemptions available. A first one applies to offers that do not exceed a total value of EUR 5,000,000 over a period of 12 months. Such offers are not subject to a mandatory prospectus but to an “information note”. This information note is not subject to prior approval. A second exemption relates to STOs limited to a total volume of up to EUR 8,000,000 over a period of 12 months and which are admitted to an approved MTF. These offers are also not subject to a mandatory prospectus but to the above mentioned “information note”.

Yes. To the extent the security token is qualified as securities, prospectus requirements apply to the same extent as if the tokenized right was sold without a token.

If the draft prospectus has been submitted in complete and satisfactory form, the FSMA has 10 working days to examine the prospectus and respond to the draft. If the entity which submits a prospectus to FSMA does so for the very first time, this 10-day period is extended to 20 working days. For every amended draft version of the submitted prospectus, the FSMA has another 10 working days to respond.

However, the FSMA cannot guarantee an overall set timeline. The approval process largely depends on the technical difficulty and quality of the submitted documents. Depending on the speed and quality of the cooperation between the client and the FSMA, the approval process may range from a couple of weeks to a few months.

The applicability of KYC/AML requirements depend on the structure and qualification of the STO.

In the case where the STO qualifies as securities or where it passes through a regulated MTF or a regulated entity such as a credit institution, KYC/AML requirements will apply. However, when STOs are structured outside of the above-mentioned scope, they could escape KYC/AML requirements completely. 

Under local laws, rights can be securitized. Depending on the nature of the right, some formalities may arise or may differ. And while some requirements are cast into law, a vast majority is the result of commercial practice.

However, whether a token can validly represent such right or title and whether the transfer of the token then also automatically implies transfer of the underlying right, is somewhat uncertain given the fact that there is at the moment neither a legal framework nor substantial commercial practice to rely upon.

The safest way to make sure the underlying right remains tied to the token is therefore to embed contractual safeguards in the respective token purchase agreement, which forbids the token holder to sell the token without selling the (tokenized) right, and vice versa. The current absence of a legal framework and the fact that token transfers often, due to their online/virtual nature, present cross-border traits, emphasize the importance of professional contract drafting or scrutiny.

Since the tokens are often sold via internet, e-commerce regulations have to be obeyed. Besides, compliance with tax laws is of course an important topic. Once the tokens are traded, regulatory restrictions apply to the trading platforms, which usually leads to a license requirement.

If tokens are classified as securities and are traded on a regulated market, which is probably not the case so far, then market follow-up obligations must also be observed, for example according to the Market Abuse Regulation (Regulation EU No. 596/2014).

The FSMA has issued a statement warning concerning tokens to both investors and providers. The statement does not per se forbid tokenization of rights but warns potential investors about the risks related to tokens. It furthermore outlines, mainly directed to providers, that a multitude of (financial) rules and regulations may be applicable to tokens depending on the structure and nature of the ICO. The statement outlines that the FSMA follows the position of the ESMA, which underlines that STOs may, depending on their structure, qualify as financial instruments and may therefore be subject to financial regulation.