A general introduction to the regulation of virtual currencies in Spain

All questions

Introduction to the legal and regulatory framework

In Spain, there is no legislation specific to virtual currencies, except for the piece of legislation approved in April 2021 implementing the Fifth Anti-Money Laundering Directive (see Section IV), the law approved in July 2021 on preventing and fighting tax evasion, and a law approved in November 2020, which indirectly relates to virtual currencies; the latter includes measures for the digital transformation of the financial system, including the legal framework for a regulatory sandbox.²

In 2018 the Spanish securities regulator (CNMV) and the Bank of Spain issued joint advice on the risks associated with purchasing virtual currencies or investing in products tied to them,³ and the CNMV has issued two other documents setting out its opinion and position on several matters related to virtual currencies. However, only the CNMV has issued a statement to clarify that it has not authorised any prospectus, nor has it exercised any authorisation for, or power to verify, any transaction in connection with cryptocurrencies and it still stands today.⁴

In 2021, the CNMV and Bank of Spain issued a new press statement on cryptocurrency investment risks.⁵

The Spanish tax authorities have also issued several binding rulings on the tax aspects of activities involving virtual currencies.

Securities and investment laws

i Classification and commercialisation of virtual currencies

The CNMV has unofficially stated that virtual currencies per se should not be considered securities. However, a draft law was published in April 2021 that also includes among the financial instruments set out in the Spanish securities market law the instruments issued by means of distributed ledger technology (DLT).⁶

In this respect, following reports from the European Securities and Markets Authority and the European Banking Authority (EBA) (both published in January 2019), cryptoassets can be classified into four categories: (1) currency tokens (cryptocurrencies with no rights or investment purposes); (2) security tokens, which usually provide property rights, interest rights or dividends attached to a business; (3) utility tokens, which facilitate access to a product or a service, but do not serve as a payment method for other products or services; and (4) hybrids, which can fall under more than one of the first three categories.

Without prejudice to the above, the CNMV has acknowledged that the offering and commercialisation of virtual currencies can have investment law implications as follows.⁷

Direct marketing

Where virtual currencies are acquired through platforms operating on the internet (exchanges) and through cryptocurrency automatic teller machines (ATMs), the CNMV considers that investors do not actually directly own the virtual currencies, and instead only have rights in relation to an unsupervised exchange or intermediary. As a consequence, purchasers are exposed to the risk of an intermediary becoming insolvent or not complying with basic rules on proper record-keeping, diligent custody and recording of assets, and the correct management of conflicts of interest.

Contracts for differences

Entities offering these products should be authorised by the CNMV to provide investment services and meet all reporting obligations and other applicable rules of conduct.

Futures, options and other derivatives

If these types of products have been authorised by a regulated supervisor, their active marketing under a public offering by market professionals to retail investors might require a prospectus approved by the CNMV or another EU authority under the passporting arrangements.

Collective investment vehicles that invest in cryptocurrencies

The CNMV has acknowledged that UCITS can invest in cryptocurrencies through financial instruments whose profitability is linked to those currencies and that do not incorporate an implicit derivative instrument, provided that their price is published in a market on a daily basis.⁸ Furthermore, Spanish hedge funds can also invest in cryptocurrencies through derivatives, provided that the settlement of the derivative does not imply the delivery of the relevant currencies, although these types of funds can only be marketed to professional investors. In any event, the prospectus and key investor information document of any Spanish collective investment scheme has to include an express and prominent mention of the investments in cryptocurrencies and the risks thereof.

Acquiring structured bonds where the underlying asset is a virtual currency

Under a public offering regime, the marketing of exchange-traded products and exchange-traded notes require approval by the supervisory authority of an explanatory prospectus that has also been subject to the relevant EU passporting procedure.

ii Initial coin offerings

The CNMV⁹ understands that transactions structured as initial coin offerings (ICOs) in many cases should be treated as issues or public offerings of transferable securities given the broad definition of transferable security under Spanish law.¹⁰

The CNMV sets out the following factors as being relevant in assessing whether transferable securities are being offered through an ICO:

1. tokens that assign rights or expectations of a share in the potential increase in value or profitability of businesses or projects or, in general, that they constitute or assign rights equivalent or similar to those of shares, bonds or other financial instruments governed by Spanish securities law; or
2. tokens that entitle access to services or to receive goods or products, that they are offered referring explicitly or implicitly to the expectation that the purchaser or investor will obtain a profit as a result of their increase in value or some form of remuneration associated with the instrument, or reference is made to its liquidity or tradability on equivalent or allegedly similar markets to regulated securities markets.

However, with regard to point (b) above, if it cannot be reasonably established that there is a correlation between the expectations of a profit or an increase of value and the evolution of the underlying business or project, then the token should not be considered a financial instrument.¹¹

If ICOs qualify as financial instruments, then the regulation contained in, relating to or arising from the Markets in Financial Instruments Directive II, the Prospectus Directive and the Alternative Investment Fund Managers Directive should apply to them.

Even if an ICO does not qualify as a public offer (because it is either aimed at fewer than 150 investors, or involves a minimum investment of €100,000 or a total amount of less than €5 million), if the placement is made using whatsoever form of advertising (including websites in Spanish offering the tokens), an entity authorised to provide investment services should intervene in relation to its marketing.¹² The CNMV understands that this requirement is fulfilled if the entity authorised to provide investment services intervenes:

1. on the occasion of each individual subscription or acquisition of the securities or financial instruments as a placement agent, broker or adviser, subject to the rules applicable in each case; or
2. by validating and supervising the offer in general and, in particular, the information provided to investors, and the placement or marketing procedure used (without an authorised entity having to intervene on the occasion of each subscription or acquisition). With regard to the validation of information, the authorised entity must ensure that the information is clear, impartial and not misleading, and that it refers to the characteristics and risks of the securities issued, as well as the company’s legal, economic and financial situation, in a sufficiently detailed manner to allow the investor to make a well-informed investment decision. Likewise, the information for investors shall include a warning on the novel nature of the registry technology and on the fact that the custody of the tokens is not carried out by an authorised entity.

To date, the CNMV has not authorised any ICOs, although it has analysed several potential ICO structures. The action of the CNMV in connection with those projects on the issue of tokens (which could be equivalent to transferable securities) has been limited to confirming that the transaction would not require the approval of a prospectus provided that it complied with the requirements set out in the Spanish legislation not to be considered a public offer; nor would it be subject to verification or prior intervention by the CNMV, although the participation of an investment firm would be necessary.

In addition, the above-mentioned draft law provides that the CNMV may subject the advertising of cryptoassets for investment purposes to authorisation, including the introduction of warnings on risks and characteristics, even though they are not products covered by the Spanish securities market law. For this purpose, in June 2021 the CNMV published a draft circular for public consultation.¹³ The purpose of this circular is to develop the standards, principles and criteria to which advertising activity related to cryptoassets will be subject and, in particular, to define the objective and subjective scope, as well as the powers of the CNMV on the supervision and control of advertising of cryptoassets.