Armenia -- Securities Classification Regulatory Overview

Armenia does not currently have a standalone, comprehensive "Virtual Assets Act" specifically defining and regulating cryptocurrency tokens as securities. Instead, the classification of cryptocurrency tokens as securities in Armenia is determined by applying existing financial and securities market legislation, primarily overseen by the Central Bank of Armenia (CBA). The CBA adopts a "substance over form" approach, meaning the economic reality and characteristics of a token, rather than its technological designation, dictate its regulatory treatment.

Legal Test Used (Equivalent to Howey Test)

While Armenia does not explicitly reference a "Howey Test" or an identical direct equivalent in its statutes, the CBA's approach aligns with the principles underlying such tests. The classification relies on the "Law of the Republic of Armenia on Securities Market" (ՀՀ օրենք «Արժեթղթերի շուկայի մասին»), which defines various types of securities and financial instruments.

The de facto test applied by the CBA evaluates whether a token possesses the characteristics of an "investment contract" or other defined securities under Armenian law. Key elements considered, often reflecting aspects of the Howey Test, would include:

1. Investment of Money/Assets: Whether an investor provides assets (including other cryptocurrencies) in exchange for the token.
2. In a Common Enterprise: Whether the investor's assets are pooled with those of other investors, and all are subject to the same risks and opportunities of the project.
3. Expectation of Profit: Whether the investor expects to earn profits primarily through appreciation in value, dividends, or other returns.
4. Derived from the Efforts of Others: Whether the anticipated profits are primarily derived from the entrepreneurial or managerial efforts of the issuer or a third party, rather than the investor's own efforts.

If a token meets these characteristics, especially if it represents an economic interest in an enterprise and offers a return based on others' efforts, it is highly likely to be classified as a security under existing Armenian law.

Which Tokens Are Considered Securities

Based on the "substance over form" approach, the CBA generally classifies tokens as follows:

• Security Tokens (Investment Tokens):

  • Tokens that represent traditional securities such as shares, bonds, units of collective investment schemes (e.g., investment funds), or derivatives.
  • Tokens that provide holders with rights analogous to those of shareholders (e.g., voting rights, profit distribution, liquidation rights).
  • Tokens whose primary purpose is to provide an investment return based on the issuer's or a third party's efforts, often without immediate utility for a product or service.
  • Examples: ICOs structured as equity raises, debt instruments tokenized, tokens representing fractional ownership in real estate or other assets, and tokens linked to a share of future profits.

• Utility Tokens:

  • Generally not considered securities if their primary purpose is to grant access to a specific product or service on a blockchain network (e.g., platform access, voting on governance, payment for services) and they have immediate utility.
  • However: A utility token can be reclassified as a security if it is marketed primarily as an investment, if its value is speculative, or if its functionality is not yet available at the time of sale, making the purchase purely for speculative future gain.

• Payment Tokens (Cryptocurrencies):

  • Generally not considered securities if their primary function is a medium of exchange (e.g., Bitcoin, Ethereum).
  • However: The CBA has repeatedly stated that cryptocurrencies are not legal tender in Armenia and warns about their risks. While not securities, their use is subject to the "Law on Combating Money Laundering and Terrorist Financing."

Registration/Exemption Requirements for Token Issuers

If a token is classified as a security:

1. Prospectus Requirements: Issuers conducting a public offering of security tokens would generally be required to register a prospectus with the CBA, detailing all relevant information about the offering, the issuer, and the token, in accordance with the "Law on Securities Market."
2. Licensing: Issuers, brokers, or exchanges dealing in security tokens would need to obtain appropriate licenses from the CBA as financial institutions, investment companies, or trading organizers.
3. Disclosure Obligations: Issuers of security tokens would be subject to ongoing disclosure requirements, similar to publicly traded companies, including periodic financial reporting and notification of significant events.
4. AML/CFT Compliance: All entities dealing with virtual assets, including security tokens, are subject to the "Law on Combating Money Laundering and Terrorist Financing" (ՀՀ օրենք «Փողերի լվացման և ահաբեկչության ֆինանսավորման դեմ պայքարի մասին»), requiring customer due diligence (KYC), transaction monitoring, and suspicious activity reporting.

Exemptions: Standard exemptions available under securities law might apply, such as private placements to qualified investors, small offerings below certain thresholds, or offerings not deemed "public" due to the limited number of investors. However, these would need to be specifically assessed against the criteria in Armenian law.

Secondary Trading Rules

Secondary trading of security tokens in Armenia would be subject to the same rules governing traditional securities trading:

1. Licensed Platforms: Platforms facilitating the secondary trading of security tokens would need to be licensed as securities exchanges or multilateral trading facilities (MTFs) by the CBA, adhering to strict rules regarding market integrity, transparency, investor protection, and operational resilience.
2. Broker-Dealer Licenses: Entities acting as brokers or dealers in security tokens would require appropriate licenses from the CBA.
3. AML/CFT: All virtual asset service providers (VASPs), including exchanges and brokers, facilitating secondary trading, must comply with AML/CFT regulations.

Enforcement Examples

Specific public enforcement actions by the CBA against crypto token issuers for unregistered securities offerings are not widely publicized or as numerous as in jurisdictions like the US. However, the CBA's approach has been characterized by:

• Warnings and Advisory Statements: The CBA has consistently issued public warnings regarding the risks associated with cryptocurrencies, including volatility, lack of regulatory oversight for certain activities, and the potential for fraud. These warnings emphasize that existing financial regulations do apply where the substance of a crypto activity matches regulated financial instruments.
• Focus on AML/CFT: A primary area of regulatory focus and enforcement has been on ensuring compliance with anti-money laundering and combating the financing of terrorism (AML/CFT) obligations by entities dealing with virtual assets. While not directly "securities" enforcement, failure to comply can lead to significant penalties.
• Preventative Measures: The CBA has historically taken a cautious stance, advising financial institutions against dealing with cryptocurrencies that are not clearly defined or regulated, especially those that could pose systemic risks or compromise financial stability. This preemptive approach limits the scope for significant unregistered securities cases if financial institutions are already deterred.
• Application of General Financial Laws: In cases where a crypto project clearly falls under an existing category of financial services (e.g., investment fund, payment system, securities brokerage), the CBA would apply the relevant laws and licensing requirements, and non-compliance would lead to enforcement under those specific statutes.

Specific Legislation and Regulatory Guidance URLs

It's important to note that direct English translations of all Armenian laws might not be readily available on official government websites. The primary official source for Armenian legislation is www.arlis.am (Armenian Legal Information System) or www.e-gov.am.

1. Law of the Republic of Armenia on Securities Market (Արժեթղթերի շուկայի մասին ՀՀ օրենք):

   • URL (Armenian): https://www.arlis.am/DocumentView.aspx?docid=141818
   • Note: This is the fundamental law defining what constitutes a security and regulating the securities market.

2. Law of the Republic of Armenia on Combating Money Laundering and Terrorist Financing (Փողերի լվացման և ահաբեկչության ֆինանսավորման դեմ պայքարի մասին ՀՀ օրենք):

   • URL (Armenian): https://www.arlis.am/DocumentView.aspx?docid=140954
   • Note: This law includes definitions for "virtual assets" and "virtual asset service providers" for AML/CFT purposes, making it relevant for any entity dealing with crypto.

3. Central Bank of Armenia (CBA) Official Website:

   • URL (English): https://www.cba.am/EN
   • Note: The CBA frequently publishes news, press releases, and guidance on financial markets, including statements regarding cryptocurrencies and associated risks. While not formal laws, these indicate their regulatory stance and interpretation of existing laws. Searching the CBA's news archives for "cryptocurrency," "virtual assets," or "digital assets" can provide insights into their approach.

It is crucial for any entity considering issuing or trading cryptocurrency tokens in Armenia to seek specific legal advice to navigate the complex regulatory landscape, as the classification often depends on the unique characteristics and economic substance of each token.