In its Communication the FSMA proposes a three step decision tree when classifying crypto-assets under Belgian law.

When compared with an earlier version of the Communication (which formed the basis for a consultation), the FSMA has highlighted that the decision tree is neutral as regards technology: the legal classification does not depend on the technology which is being used.

(1) Step 1: the starting point for the legal classification analysis is the question whether the crypto-asset is incorporated into an "instrument". This will generally be the case if the crypto-asset is exchangeable or fungible.

  • If the crypto-asset is not incorporated into an instrument, then it cannot be classified as a security or an investment instrument, and the Regulation 2017/1129 (Prospectus Regulation), the Belgian law of 11 July 2018 (Prospectus Law) and the rules of conduct of Directive 2014/65/EU (MiFID2) do not apply.
  • ü If the crypto-asset is incorporated into an instrument, then please go to step 2.

(2) Step 2: the next question is whether the crypto-asset represents a right in respect of an issuer (or another person, such as a guarantor):

  • If there is no issuer (for instance where instruments are created by a computer code and this is not done in execution of an agreement between an issuer and an investor), then "in principle" the Prospectus Regulation, the Prospectus Law and the MiFID2 rules of conduct do not apply. The FSMA lists as examples Bitcoin or Ether. In this regard it is important to note that these crypto-assets can still have a payment or exchange function, which could trigger other regulations (in particular the Belgian VASP regime introduced earlier this year). Also investor protection rules, including Belgian product bans, may apply.
  • If there is an issuer, then please go to step 3

(3) Step 3: the final question is whether the crypto-asset represents (a) a right to the delivery of a service or a product by the issuer, or (b) a right to a share in the profits or losses of a project, or a voting right, or a right to payment of an amount of money:

  • If the crypto-asset represents a right to the delivery of a service or a product by the issuer, the key question is whether the crypto-asset has an investment objective. If an overall analysis of the specific characteristics of the crypto-asset and the way in which the crypto-asset is brought to the market indicates that it has an investment objective (even if such objective is ancillary) then the crypto-asset will fall within the scope of the Prospectus Law. The FSMA lists a series of relevant indicators in this respect.
  • If the crypto-asset represents a right to a share in the profits or losses of a project, or a voting right, or a right to payment of an amount of money, the crypto-asset will trigger the Prospectus Law, the Prospectus Regulation and/or the MiFID2 rules of conduct. The key question in this respect is whether the crypto-asset is transferable. If the crypto-asset is transferable then it will fall within the scope of the Prospectus Law, the Prospectus Regulation and the MiFID2 rules of conduct. Conversely, if the crypto-asset is not transferable then it will only fall within the scope of the Prospectus Law.

It is important to note that the Communication is not an endpoint but, according to the FSMA, is "likely to evolve over time", especially taking into account MiCA.

Also, the FSMA has pointed out that the Communication is focused on the questions and situations which it has encountered most frequently to date; the Communication does not address all potential classifications and is "not intended to replace a thorough analysis, in the light of the applicable rules, of all specific characteristics of the product or the way it is presented".

In other words, when classifying a crypto-asset under Belgian law, a thorough analysis must be done of the crypto-asset concerned, taking into account its specific characteristics as well as the way the crypto-asset is marketed and presented.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.