CMS Expert Guide to Crypto Regulation in Spain

The Fifth Money Laundering Directive (“5MLD”) was transposed into Spanish Law through Royal Decree-Law 7/2021, of 27 April (“RD-Law 7/2021”).

Such RD-Law 7/2021 also introduced the most relevant amendments on Law 10/2010 of 28 April 2010 on the prevention of money laundering and terrorist financing (Law 10/2010) including as obliged entities the exchanges of virtual currency for fiat and e-wallet custodian service providers.

Security tokens: Spanish Law 6/2023 of 17 March on Securities Markets and Investment Services ("LMVSI").

Tax: Law 11/2021, of July 9, on measures to prevent and combat tax fraud, transposing Council Directive (EU) 2016/1164, of 12 July 2016, establishing rules against tax avoidance practices that directly affect the functioning of the internal market, amending various tax and gambling regulation rules which incorporates the Thirteenth Additional Provision to Law 35/2006, of 28 November 2006, on Personal Income Tax and partially amending the laws on Corporate Income Tax, Non-Resident Income Tax and Wealth Tax requiring the reporting of balances in virtual currencies on an annual basis.

Direct sales of tokens by issuers (considered as P2P transactions); (ii) Borrowing and lending; (iii) Yield and staking services; and (iv) Staking on proof of stake consensus mechanisms are unregulated activities in Spain.

Regarding NFTs, they are not considered virtual currencies under Law 10/2010 and MiCAR and consequently their exchange and/or custody are unregulated activities under Spanish Law.

We understand that Law 10/2010 will be modified in order to include CASPs under MiCA as obliged subjects.

Security tokens: Security tokens are considered financial instruments and therefore the Spanish and European financial markets regulation shall apply in the performance of such activities.

The approval and publication of the LMVSI meant: (i) the inclusion of Distributed Ledger Technology ("DLT") as a valid system for the issuance, registration, transfer or custody of financial instruments; (ii) introduction of aspects related to MiCAR and the advertising of crypto-assets; and (iii) the supervisory and sanctioning regime of the crypto-asset market.

Security tokens: MiFID II requirements apply for reverse solicitation of entities outside the EU. 

Upmost, the LMVSI allows investment firms authorised in another Member State to act in Spain under the Freedom to Provide Services, so a firm registered outside Spain can provide services on an active solicitation as long as it applies to its regulator to be passported to Spain.

Implications of the use of DLT in securities markets:

The LMVSI brings relevant developments to promote the use of DLT or other similar technologies for the issuance, registration, transfer or administration of all financial instruments, as it is set out in Article 2.1 of the LMVSI. 

In particular, DLT-based systems will have to: 

• Ensure the integrity and immutability of the emissions that take place within them;
• Directly and indirectly identify the holders of rights in tradable securities; and
• Determine the nature, characteristics and number of the securities.

Moreover, Security Token Offerings ("STOs") can be carried out without a prospectus, if they comply with the requirements set forth in the LMVSI. However, as a new feature of the LMVSI, in cases where transferable securities are represented by DLT-based systems, it will always be necessary that an entity is responsible for the administration of the registration and registration of securities represented by DLT. 

These entities are called ERIR and they need to hold a MiFID custody license.

Changes to the crypto-asset market

The LMVSI includes a new sanctions regime which includes serious infringements through an express reference to the regime of sanctions relating to cryptoassets included in MiCA. Therefore, the LMVSI directly applies MiCA with regards to the sanction regime.

In addition, the LMVSI extended the scope of action of the CNMV in this market. Thus, Article 247 of the LMVSI establishes that the CNMV may subject to authorisation and control the advertising of cryptoassets presented as investment objects which, as they are not considered tradable securities, could be excluded from the activities contained in this law.

Nevertheless, according to the LMVSI, the Bank of Spain will exercise the supervision, inspection, and sanctioning functions in relation to the obligations laid down in MiCA regarding issuers of electronic money tokens and asset-referred tokens