Belgium -- Securities Classification Regulatory Overview

Belgium, as a member of the European Union, classifies cryptocurrency tokens as securities primarily by applying existing EU and national financial legislation, notably the Markets in Financial Instruments Directive II (MiFID II) and the Prospectus Regulation. The approach is one of "substance over form," meaning the actual characteristics and economic reality of the token determine its classification, regardless of what it's called.

The Financial Services and Markets Authority (FSMA) is the Belgian competent authority responsible for supervising financial markets and enforcing these rules.

With the staggered implementation of the Markets in Crypto-Assets (MiCA) Regulation, the regulatory landscape is evolving. MiCA will establish a dedicated framework for crypto-assets not already covered by existing financial legislation, while tokens that qualify as "financial instruments" under MiFID II will continue to be regulated under the existing framework.

1. Legal Test for Classification (Howey Test Equivalent)

Belgium does not use a direct equivalent of the US "Howey Test." Instead, the classification hinges on whether a crypto-asset qualifies as a "financial instrument" as defined under MiFID II (Directive 2014/65/EU) and transposed into Belgian law (e.g., through the Law of 2 August 2002 concerning the supervision of the financial sector and financial services, and various Royal Decrees).

The core questions are:

• Does the token fall into any of the categories of "financial instruments" listed in Annex I, Section C of MiFID II? These include:
  • Transferable securities (shares, bonds, units in collective investment undertakings)
  • Money-market instruments
  • Units in collective investment undertakings
  • Options, futures, swaps, forward rate agreements, and any other derivative contracts relating to securities, currencies, interest rates or yields, emission allowances or other underlying assets, instruments or indices.
• What rights and obligations does the token grant to its holder? This involves a deep dive into the token's whitepaper, terms and conditions, and actual use case. Key considerations include:
  • Representation of ownership: Does it represent a share in a company or project (equity token)?
  • Debt obligation: Does it represent a loan or debt (bond token)?
  • Right to profit/revenue: Does it entitle holders to a share of profits, dividends, or revenue generated by a project?
  • Expectation of return: Is there a clear expectation of financial return derived from the efforts of a third party (the issuer or development team)? This echoes the "expectation of profit from the efforts of others" element of Howey but is framed within existing EU securities law.
  • Transferability: Is it designed to be traded on secondary markets?

The FSMA has issued guidance (e.g., its "Communication on ICOs" and subsequent updates) emphasizing this substance-over-form approach. They look at the economic reality of the token, rather than just its label.

2. Which Tokens are Considered Securities

Based on the MiFID II framework and FSMA guidance:

• Security Tokens: These are tokens explicitly designed to represent traditional securities.

  • Equity Tokens: Represent ownership in a company or project, granting rights similar to shares (e.g., voting rights, dividend rights, liquidation rights). These are almost always classified as transferable securities.
  • Debt Tokens: Represent a loan or debt instrument, entitling holders to interest payments and/or principal repayment. These are typically classified as transferable securities.
  • Revenue/Profit Sharing Tokens: Grant holders a contractual right to a share of future revenues or profits from a project or company. These are highly likely to be considered transferable securities due to their investment nature and expectation of return.
  • Tokens linked to other financial instruments: Derivatives tokens, or tokens that provide rights akin to those found in other financial instruments listed in MiFID II.

• Utility Tokens: These are more ambiguous.

  • If truly functional: If the token grants access to an existing or fully developed product or service and is primarily used for consumption within a platform (e.g., paying for computing power, accessing content), and there is no predominant expectation of profit from its resale or appreciation driven by the issuer's efforts, it is less likely to be considered a financial instrument.
  • If investment-like: However, if a utility token is offered with a strong emphasis on its speculative value, future appreciation, or if the product/service is not yet developed and the token acts as an investment in the future project, the FSMA may classify it as a financial instrument (e.g., transferable security), especially if it creates an expectation of profit from the efforts of the issuer.

• Payment/Exchange Tokens (e.g., Bitcoin, Ethereum): Generally, these are not considered financial instruments under MiFID II. They function primarily as a medium of exchange or store of value. However, the FSMA has warned that certain activities involving them (e.g., offering investment advice, managing portfolios) could fall under financial services regulation if those tokens are used in a way that creates a financial instrument (e.g., a derivative contract based on their price).

• MiCA's new categories: Once MiCA fully applies (from late 2024/mid-2025):

  • Asset-Referenced Tokens (ARTs): Crypto-assets that purport to maintain a stable value by referencing the value of several fiat currencies, one or several commodities, or one or several crypto-assets, or a combination of such assets. These have a specific regime under MiCA.
  • E-Money Tokens (EMTs): Crypto-assets that purport to maintain a stable value by referencing the value of a single fiat currency. These also have a specific regime under MiCA, largely mirroring existing e-money directives.
  • Other Crypto-Assets: MiCA also covers crypto-assets that are not ARTs, EMTs, or financial instruments under MiFID II.

3. Registration/Exemption Requirements for Token Issuers

The requirements depend heavily on whether the token is classified as a financial instrument under MiFID II or falls under MiCA.

A. If classified as a Financial Instrument (e.g., a "Security Token"):

• Prospectus Requirement (Prospectus Regulation (EU) 2017/1129):
  • A public offer of transferable securities (including security tokens) in Belgium (or an EU regulated market listing) requires a prospectus approved by the FSMA (or another EU competent authority if passporting rights are used).
  • The prospectus must contain detailed information about the issuer, the securities being offered, the risks involved, and the use of proceeds.
• Exemptions from Prospectus: Several exemptions exist:
  • Offers to qualified investors only.
  • Offers to fewer than 150 natural or legal persons per Member State (who are not qualified investors).
  • Offers with a total consideration of less than €1 million over a 12-month period (this is the EU floor; Belgium currently uses the higher threshold of €8 million over 12 months for offers not admitted to trading on an EU regulated market).
  • Offers of securities with a total consideration in the Union of less than €8,000,000 over a 12-month period (as per Belgian law implementing Article 3(2) of the Prospectus Regulation).
• Market Abuse Regulation (MAR - EU 596/2014): Security tokens, especially if traded on secondary markets, would be subject to MAR rules on insider dealing, market manipulation, and disclosure.
• Issuers of financial instruments: May need authorization as an investment firm if they perform certain activities (e.g., underwriting, operating an MTF).

B. If classified as a Crypto-Asset under MiCA (from late 2024/mid-2025 for non-ART/EMT crypto-assets):

• White Paper Requirement:
  • Issuers offering crypto-assets to the public in the EU or seeking admission to trading on a crypto-asset trading platform must publish a crypto-asset white paper.
  • The white paper needs to be notified to the FSMA (or relevant EU authority) at least 20 working days before publication and comply with MiCA's content requirements.
• Authorization for ART/EMT Issuers: Issuers of Asset-Referenced Tokens (ARTs) and E-Money Tokens (EMTs) require specific authorization from the FSMA (or the European Banking Authority for significant ARTs).
• Exemptions from White Paper:
  • Offers of crypto-assets to qualified investors only.
  • Offers made to fewer than 150 persons per Member State.
  • Offers with a total consideration of less than €1,000,000 over a 12-month period.
  • Offers involving utility tokens that are truly for accessing goods/services (not investments).

4. Secondary Trading Rules

A. If classified as a Financial Instrument:

• MiFID II and Belgian Transposing Legislation: Trading of security tokens would be subject to the full MiFID II regime.
  • Trading Venues: Must be traded on regulated markets (RMs), multilateral trading facilities (MTFs), or organised trading facilities (OTFs) operated by authorized investment firms or market operators.
  • Investor Protection: Rules on suitability and appropriateness assessments, best execution, order handling, and client asset protection.
  • Market Transparency: Pre-trade and post-trade transparency requirements.
  • Market Abuse: Strict adherence to MAR rules, including prohibitions on insider dealing and market manipulation, and disclosure obligations for issuers.
  • Authorisation: Any entity providing services related to the trading of these tokens (e.g., operating an exchange, providing brokerage, investment advice) would need to be an authorized investment firm.

B. If classified as a Crypto-Asset under MiCA:

• Crypto-Asset Service Providers (CASPs): Entities providing services related to crypto-assets (e.g., operating a trading platform for crypto-assets, exchanging crypto-assets for fiat currency or other crypto-assets, custody and administration of crypto-assets) will need to be authorized as CASPs under MiCA.
• Operational Requirements for CASPs: MiCA imposes robust organizational, operational, and prudential requirements on CASPs, including rules on:
  • Internal governance and controls.
  • Client safeguarding arrangements.
  • Complaint handling.
  • Conflicts of interest.
  • Orderly trading and market integrity rules for crypto-asset trading platforms.

5. Enforcement Examples

The FSMA has been proactive in issuing warnings and taking action against entities operating illegally in the crypto space, often focusing on consumer protection and the unauthorized provision of financial services or public offerings without a prospectus.

• Warnings against fraudulent platforms/ICOs: The FSMA maintains a regular "black list" of fraudulent trading platforms and warns consumers against initial coin offerings (ICOs) that appear to be scams or do not comply with financial regulations. While not always directly identifying tokens as securities, these warnings often highlight the lack of a prospectus and the fact that the offerings constitute an illegal public offer of investment products.
  • Example: In various communications, the FSMA has warned against platforms offering "investment products" based on crypto-assets without the necessary authorizations or prospectus, often emphasizing that these may be scams or illegal financial activities. They classify these under the broader category of "fraudulent trading platforms."
• Supervision of crypto-related services: While specific high-profile enforcement cases related to security token offerings are less frequently publicized than those in larger markets, the FSMA has consistently stated that it is monitoring the market and will intervene where existing financial laws are violated. Their focus often extends to ensuring that any crypto-related activity that does fall under MiFID II or other financial legislation complies with licensing and disclosure requirements.
• Unlicensed Activity: Many enforcement actions relate to the provision of financial services (e.g., investment advice, portfolio management, operating an exchange) involving crypto-assets without the required authorisation. If a token is deemed a financial instrument, any entity providing such services must be an authorized investment firm.

Specific FSMA Communications and Warnings:

• FSMA communication on the classification of crypto-assets (2018 and updates): This communication clarifies the FSMA's interpretative approach, stating that crypto-assets can be qualified as financial instruments depending on their characteristics. It highlights the "substance over form" principle.
• FSMA warnings against unregistered virtual asset service providers (VASPs): Since May 2022, Belgian law requires all VASPs (crypto exchanges, custodian wallet providers) to register with the FSMA. The FSMA regularly publishes lists of registered VASPs and warns against unregistered ones. While this is about services, it underscores the regulatory scrutiny of the crypto ecosystem.
• Focus on Public Offers: A recurring theme in FSMA warnings is the lack of a prospectus for public offerings of "investment products" or "financial instruments," which would apply if a crypto token is classified as such.

Specific Legislation and Regulatory Guidance URLs:

• FSMA Website - Crypto-assets:
  • https://www.fsma.be/en/consumers/crypto-assets
  • https://www.fsma.be/en/node/30349 (Registration of providers of exchange services between virtual currencies and fiat currencies and custodian wallet services)
• FSMA Communication on ICOs/Crypto-assets (original guidance, often updated implicitly): While a specific single link for the latest comprehensive classification guidance is hard to pinpoint due to evolving nature, the FSMA's stance is integrated into its broader communications on crypto-assets and public offerings. Search for "FSMA ICO" or "FSMA crypto-assets communication" on their site.
• MiFID II (Directive 2014/65/EU):
  • https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014L0065
• Prospectus Regulation (EU) 2017/1129:
  • https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32017R1129
• Markets in Crypto-Assets (MiCA) Regulation (EU) 2023/1114:
  • https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1114
• Market Abuse Regulation (EU) 596/2014:
  • https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014R0596

It's important to consult the latest FSMA publications and legal advice, as the regulatory landscape for crypto-assets is dynamic, especially with MiCA's full implementation on the horizon.