Cryptocurrency and Funds Registered with the CNMV
On May 9, 2018, the CNMV, as part of its series “Questions and Answers for Companies in the FinTech Sector,” raised the possibility of establishing a fund that invests directly in cryptocurrencies.
All of this is directly related to the Joint Communication from the CNMV and the Bank of Spain, dated February 8, 2018, which warned of the following regarding cryptocurrencies and funds:
The CNMV and the Bank of Spain caution that, to date, no “cryptocurrency” issuance or ICO has been registered, authorized, or verified by any regulatory body in Spain.
This means that there are no “cryptocurrencies” or “tokens” issued in ICOs whose purchase or ownership in Spain would be covered by any of the guarantees or protections provided for in the regulations governing banking or investment products.
In this regard, while emphasizing the CNMV’s concern over this phenomenon of investment in virtual currencies, it is noted that these types of funds are viable through a Closed-ended Collective Investment Entity (EICC). This implies, on the one hand, compliance with a series of requirements and, on the other, practical problems regarding regulatory compliance in relation to asset valuation (due to volatility), as well as liquidity management and custody guarantees.
The CNMV: Establishment of Registered Funds Investing in Cryptocurrency
We are sharing the response published by the CNMV because it is of great interest:
These types of funds would be legally permitted under Law 22/2014, which regulates not only venture capital entities but also other closed-end collective investment entities and their management companies.
Investment could be carried out through a Closed-ended Collective Investment Entity (EICC) in which, according to Article 2.1 of Law 22/2014, the divestment policy for its participants or partners must meet the following requirements:
- Divestitures must occur simultaneously for all investors or participants.
- The amount received by each investor or unitholder shall be based on the rights corresponding to each of them, in accordance with the terms set forth in the articles of incorporation or bylaws for each class of shares or units.
The establishment of these types of entities, which may take the form of funds (FICC) or corporations (SICC), is subject to numerous requirements and conditions, including the restriction that shares or interests in these entities may be sold only to professional investors, as defined in Articles 205 and 206 of the Consolidated Text of the Securities Market Law.
In addition to being registered with the CNMV in accordance with Article 8 of Law 22/2014, FICCs must be managed either by a Closed-End Collective Investment Entity Management Company (SGEIC), or by a Collective Investment Institution Management Company (SGIIC) authorized to manage this type of fund, or by an international SGIIC that holds a European passport to operate in Spain and is authorized to manage a closed-end investment fund. FICCs do not have a minimum net asset value requirement for their formation, in accordance with Article 38.2 of Law 22/2014.
SGEICs must have a minimum initial share capital of €125,000, fully paid in. Likewise, one might consider the option of using self-managed SICCs, as defined in Articles 45 et seq. of Law 22/2014, which, pursuant to Article 48.1, require a minimum initial fully paid-in share capital of €300,000.
It should be noted that, pursuant to Article 85 of Law 22/2014, FICCs and SICCs are not subject to supervision by the CNMV, with the exception of self-managed SICCs.
However, despite the theoretical fit within this framework, FICC and SICC investments in cryptocurrencies raise a number of practical issues regarding compliance with regulations related to asset valuation, liquidity management, and custody guarantees. Regarding asset valuation, it would be necessary to determine the procedure to be used for valuing cryptocurrencies, taking into account their volatility, fragmentation, and the lack of regulation in the underlying cryptocurrency market. With regard to liquidity, it would be necessary to establish how liquidity will be managed and how liquidity risk will be controlled in order to ensure that the fund can meet its obligations related to any leverage it may have incurred. It is also necessary to analyze how the custody of this class of assets will be ensured—for example, how software validation, key custody, and cyberattack risk management will be handled.
Specifically, with regard to the practical difficulty of properly safeguarding assets—and given that virtual currency transactions can, in some cases, be conducted anonymously and without proper customer identification—the reporting obligations for the prevention of money laundering should be taken into account. It would be advisable to contact SEPBLAC to determine whether the EICC is required to comply with any of the reporting obligations set forth in Law 10/2010 on the Prevention of Money Laundering and Terrorist Financing.
The CNMV is monitoring the rise in investment in virtual currencies with concern regarding the potential risks this investment may pose to investor protection—particularly for retail investors—and to the stability and integrity of the markets.
The aforementioned text can be consulted in full under CNMV Legislation.
Background on the CNMV’s 2018 Guidelines
In 2018, investment in cryptocurrencies began to raise significant questions for regulators, managers, and investors. One of the main issues was whether a collective investment vehicle with direct exposure to virtual currencies could be established, and under what conditions it could fit within the existing regulatory framework.
Practical issues identified by the CNMV
The guidelines in question highlighted several practical issues: asset valuation, liquidity management, the safekeeping of keys or virtual currencies, and risks related to anti-money laundering.
These factors were particularly significant given the volatility of cryptocurrencies, market fragmentation, the lack of specific regulation of the underlying market, and the technical challenges associated with the secure custody of digital assets.
Preguntas frecuentes sobre criptomonedas y fondos de inversión
¿Podían los fondos registrados en la CNMV invertir directamente en criptomonedas?
El artículo comenta una respuesta de la CNMV publicada en 2018 sobre la posible inversión directa en criptomonedas a través de determinadas entidades de inversión colectiva de tipo cerrado. Su interés principal es histórico y técnico, porque refleja el análisis existente en aquel momento.
¿Qué son las EICC, FICC y SICC?
Las Entidades de Inversión Colectiva de tipo Cerrado pueden adoptar la forma de fondos, conocidos como FICC, o de sociedades, conocidas como SICC. En el artículo se analiza su posible encaje para canalizar inversiones en criptomonedas conforme al marco jurídico examinado en 2018.
¿Qué problemas prácticos advertía la CNMV?
La CNMV señalaba problemas relacionados con la valoración de los activos, la gestión de la liquidez, la custodia de las claves o monedas virtuales, el riesgo de ciberataque y las obligaciones vinculadas a la prevención del blanqueo de capitales.
¿Este artículo refleja la normativa vigente sobre fondos y criptoactivos?
No de forma completa. Este artículo fue publicado en mayo de 2018 y debe leerse como una referencia histórica sobre los primeros análisis regulatorios en materia de criptomonedas, fondos y supervisión financiera. Para valorar una estructura actual de inversión o vehículo vinculado a criptoactivos, es necesario revisar la normativa vigente y el caso concreto.
Lawyers Specializing in Cryptocurrencies at IN DIEM
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