Brunei -- Securities Classification Regulatory Overview

Brunei Darussalam, through its central bank and financial regulator, the Brunei Darussalam Central Bank (BDCB) (formerly Autoriti Monetari Brunei Darussalam or AMBD), adopts a "substance over form" approach when classifying cryptocurrency tokens. This means that while there isn't a dedicated, comprehensive regulatory framework specifically for all crypto assets, existing financial laws apply if a token exhibits characteristics of a regulated financial product.

The primary legislation governing securities in Brunei is the Securities Markets Order, 2015 (SMO).

1. Legal Test Used (Howey Test Equivalent)

Brunei does not explicitly adopt the U.S. Howey Test. Instead, its approach is based on the broad definition of "securities" under the Securities Markets Order, 2015. The BDCB would assess whether a crypto token falls within the scope of instruments defined as "securities" in the SMO, which includes:

• Shares or debentures of a corporation or an unincorporated body.
• Units in a collective investment scheme (like mutual funds or unit trusts).
• Derivatives (e.g., options, futures, contracts for differences related to securities).
• Interests in a partnership or limited liability partnership where the investors do not have day-to-day control over the management of the business.
• Any right, option or interest in respect of any of the above.

Essentially, if a crypto token is structured or marketed in a way that it represents:

• An investment of money or assets.
• In a common enterprise (e.g., the token issuer's project).
• With an expectation of profit.
• Primarily derived from the managerial or entrepreneurial efforts of others (the issuer or third parties).
• And embodies the characteristics of an instrument already defined as a "security" in the SMO.

...then it is highly likely to be classified as a security under Brunei law. This is a pragmatic, functional approach rather than a rigid, named test.

2. Which Tokens Are Considered Securities

Based on the "substance over form" approach, the following types of tokens are most likely to be classified as securities:

• Investment Tokens (Security Tokens): Tokens that represent:

  • Equity: Entitlement to a share in profits, voting rights, or ownership in the underlying entity (similar to shares).
  • Debt: A claim on future income or principal repayment (similar to debentures or bonds).
  • Units in a Collective Investment Scheme: Tokens that pool investor funds for investment purposes, managed by a third party, with investors expecting returns from that management.
  • Tokens providing rights to future profits or revenue streams from a specific project or enterprise.
  • Tokens that derive their value from an underlying asset and offer an investment return to holders, especially if the asset's management is external to the token holder.

• Utility Tokens (Conditional): While often designed to provide access to a product or service, a utility token can be deemed a security if:

  • It is marketed with an emphasis on its investment potential rather than its utility.
  • Its value is primarily speculative, derived from the efforts of others, and not immediate consumption.
  • The underlying product/service is not yet functional or is indefinitely delayed, making the token primarily an investment vehicle.

• Payment/Currency Tokens (Generally Not Securities): Tokens designed primarily as a medium of exchange (e.g., Bitcoin, stablecoins) are generally not considered securities, unless they are structured to provide investment returns, or represent a claim on a pooled fund of assets designed for investment purposes. However, they might fall under other regulations, such as those related to anti-money laundering (AML) and counter-financing of terrorism (CFT) or e-money.

3. Registration/Exemption Requirements for Token Issuers

If a token is classified as a security, its issuance and offering are subject to the requirements of the SMO:

• Prospectus Requirement: Generally, an issuer wishing to offer securities to the public in Brunei must:
  • Prepare and lodge a prospectus with the BDCB.
  • Obtain approval from the BDCB for the offer document.
  • Ensure the prospectus contains all material information necessary for investors to make an informed decision.
• Exemptions: The SMO provides for certain exemptions from the prospectus requirement, which typically include:
  • Small Offers: Offers made to a limited number of persons or for a limited amount of capital.
  • Private Placements: Offers made only to specific sophisticated or institutional investors (e.g., high-net-worth individuals, accredited investors, financial institutions).
  • Offers to Existing Shareholders: Offers to current shareholders on a pro-rata basis.
  • Offers of certain types of government securities.
  • The specific conditions for these exemptions would be detailed in the SMO and its subsidiary regulations.

4. Secondary Trading Rules

For tokens classified as securities:

• Licensed Trading Platforms: Any platform facilitating the secondary trading of such tokens must be licensed as a "stock market" or "approved exchange" under the SMO by the BDCB. This requires adherence to rules on market integrity, surveillance, investor protection, and operational resilience.
• Licensed Intermediaries: Entities or individuals involved in facilitating trades (e.g., brokers, dealers) would need to hold the appropriate Capital Markets Services Licence (CMSL) from the BDCB for dealing in securities.
• Market Conduct Rules: All trading activities would be subject to market conduct rules to prevent market manipulation, insider trading, and other illicit activities.
• AML/CFT Compliance: Any platform or intermediary dealing with crypto assets, regardless of their security classification, must comply with Brunei's anti-money laundering and counter-financing of terrorism regulations, including customer due diligence (CDD) and suspicious transaction reporting (STR) obligations.

5. Enforcement Examples

Publicly available enforcement actions specifically targeting the classification of crypto tokens as unregistered securities in Brunei are rare to non-existent. This is largely due to:

• Market Size: Brunei's financial market is relatively small, and the volume of crypto-related activities, particularly large-scale ICOs or STOs targeting Bruneian investors, has been limited.
• Regulatory Approach: The BDCB generally adopts a cautious and guidance-oriented approach, often issuing warnings to the public about the risks associated with investing in unregulated products or with entities not licensed in Brunei.
• Proactive Warnings: The BDCB has frequently issued public warnings about unlicensed financial service providers and investment schemes, including those involving virtual assets. These warnings serve to educate the public and deter illegal activities before they escalate to formal enforcement actions.

Should an entity offer security tokens without proper registration, the BDCB would likely:

• Issue a cease and desist order.
• Place the entity on its Investor Alert List.
• Impose administrative penalties or fines.
• Refer the matter for criminal prosecution under the SMO if severe breaches are found.

Specific Legislation and Regulatory Guidance URLs

• Brunei Darussalam Central Bank (BDCB) Official Website:

  • https://www.bdcb.gov.bn/
  • This is the primary source for official announcements, publications, and regulatory frameworks. Look under sections like "Financial Regulation," "Publications," or "Consumer Information" for relevant guidance or warnings.

• Securities Markets Order, 2015:

  • This legislation can typically be found on the Attorney General's Chambers (AGC) Brunei Darussalam website, which hosts Brunei's consolidated laws.
  • https://www.agc.gov.bn/ (You would need to navigate or search for the "Securities Markets Order, 2015" within their legal database.)

• BDCB Investor Alert List:

  • The BDCB regularly updates a list of unlicensed entities that are involved in potentially illegal financial activities. While not specific to crypto securities classification, it reflects the BDCB's enforcement posture against unregulated investment schemes.
  • https://www.bdcb.gov.bn/investor-alert-list/

It's important for any entity planning to issue or trade crypto tokens in Brunei to consult legal counsel specializing in Brunei's financial regulations to ensure full compliance with the evolving legal landscape.