Cabo Verde -- Securities Classification Regulatory Overview

Cabo Verde's regulatory framework for cryptocurrency tokens, particularly concerning their classification as securities, is still in a nascent and evolving stage. Unlike jurisdictions with specific legislation like the EU's MiCA or the US's well-established Howey test, Cabo Verde primarily relies on interpreting its existing securities laws and financial regulations to address virtual assets.

The key institutions involved are:

• Banco de Cabo Verde (BCV): The central bank, responsible for monetary policy, financial stability, and prudential supervision. It has issued warnings and guidance on virtual assets.
• Comissão Nacional do Mercado de Valores Mobiliários (CNMVM): The national securities commission, responsible for regulating the securities market.
• Agência Reguladora Multissectorial da Economia (ARME): A multisector regulatory agency, which might have a role in some digital service aspects but less directly on securities classification.

Here's a breakdown based on the available information:

1. Legal Test Used (Howey Test Equivalent)

Cabo Verde does not have a specific "Howey Test equivalent" explicitly codified for cryptocurrency tokens. Instead, the classification would likely be determined by applying the general definitions of "securities" or "financial instruments" found in its existing securities legislation (e.g., the Código do Mercado de Valores Mobiliários – Securities Market Code, or relevant decrees).

The approach would be one of "substance over form" or "economic reality," meaning that the inherent characteristics and purpose of the token, rather than its technical label, would dictate its classification. A token would likely be considered a security if it exhibits characteristics commonly associated with traditional financial instruments, such as:

• Investment Contract: Where an investor (1) invests money (or other value) (2) in a common enterprise (3) with an expectation of profit (4) primarily from the efforts of others. This is the underlying principle behind tests like Howey, and it is a common legal concept in many jurisdictions.
• Shares or Participations: Tokens representing ownership or a stake in a company or project.
• Bonds or Debt Instruments: Tokens representing a loan that promises repayment with interest.
• Units in Collective Investment Schemes: Tokens representing an interest in a fund or pooled investment.

Therefore, while not explicitly named "Howey," the spirit of evaluating whether a token represents an investment in an enterprise with an expectation of profit from others' efforts is likely the guiding principle.

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): These are explicitly designed to represent traditional financial assets like equity, debt, or derivatives. They are the clearest examples.
• Asset-Backed Tokens: Tokens representing ownership of physical assets (real estate, art, commodities), where the primary purpose is investment and speculation rather than direct utility of the underlying asset.
• Initial Coin Offerings (ICOs) / Security Token Offerings (STOs): If the tokens are sold to raise capital for a project, and purchasers expect a return based on the project's success or the efforts of the issuer/team, they would very likely be deemed securities.
• Some Utility Tokens: Even if labeled "utility," if the primary marketing and investor expectation is capital appreciation rather than immediate consumption of a service, and their value is tied to the efforts of the issuer, they could be reclassified as securities. This is particularly true if the utility is not yet functional or widely available at the time of sale.

Payment/Currency Tokens (e.g., Bitcoin, pure stablecoins): These are less likely to be considered securities on their own, as their primary function is generally a medium of exchange or store of value, rather than representing an investment in an enterprise. However, if they are offered as part of an investment scheme (e.g., a crypto fund or interest-bearing account), the scheme itself could fall under securities regulation.

3. Registration/Exemption Requirements for Token Issuers

If a token is classified as a security under Cabo Verdean law, then its issuance and offering would be subject to the country's general securities regulations. This typically means:

• Registration/Authorization: The issuer would need to register the offering with the CNMVM or obtain specific authorization before making the token available to the public. This would involve significant disclosure requirements.
• Prospectus Requirements: Issuers would likely need to prepare and publish a detailed prospectus, providing comprehensive information about the token, the issuer, the underlying project, risks, and financial details, similar to a traditional public offering of shares or bonds.
• Issuer Obligations: Compliance with ongoing reporting, governance, and transparency requirements.
• Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT): Even if a token is not a security, the BCV has emphasized that all entities dealing with virtual assets are subject to AML/CFT obligations. This is the most developed area of crypto regulation in Cabo Verde so far.

Exemptions: Standard securities law exemptions (e.g., private placements to sophisticated investors, offerings below a certain threshold, offerings to a limited number of investors) might apply, but there are no specific crypto-related exemptions currently defined.

4. Secondary Trading Rules

If a token is deemed a security, its secondary trading would also fall under the purview of securities market regulations:

• Authorized Trading Platforms: Trading would generally need to occur on regulated exchanges or platforms authorized by the CNMVM. Cabo Verde does not currently have specific regulated crypto exchanges for security tokens.
• Licensed Intermediaries: Broker-dealers and other intermediaries facilitating the trading would need to be licensed by the CNMVM.
• Market Conduct Rules: Rules against market manipulation, insider trading, and other abusive practices would apply.
• AML/CFT: All participants in secondary trading, including exchanges and intermediaries, would be subject to stringent AML/CFT requirements.

Currently, most cryptocurrency trading by Cabo Verdean citizens likely occurs on international, unregulated (by Cabo Verde) platforms. However, if a token were legally classified as a security in Cabo Verde, trading it outside these regulated channels could pose compliance risks for Cabo Verdean entities and individuals.

5. Enforcement Examples

Specific, public enforcement actions in Cabo Verde classifying cryptocurrency tokens as unregistered securities and prosecuting issuers are not widely publicized or readily available.

The BCV has primarily focused on:

• Warnings and Alerts: Issuing warnings to the public about the risks associated with virtual assets, emphasizing their speculative nature, lack of regulation, and potential for fraud.
• AML/CFT Compliance: Stressing that financial institutions and other entities involved in virtual asset activities must comply with existing AML/CFT laws.

The lack of specific enforcement examples does not mean the laws aren't applicable, but rather that the focus has been on cautionary measures and risk awareness. Any enforcement would likely be based on interpreting existing general securities laws.

Specific Legislation and Regulatory Guidance URLs

Cabo Verde's regulatory landscape for virtual assets is still developing. The most direct guidance comes from the Central Bank (Banco de Cabo Verde) regarding AML/CFT and general warnings. Specific, dedicated legislation for classifying crypto as securities is not yet in place.

1. Banco de Cabo Verde (BCV) Official Website:

   • URL: https://www.bcv.cv/
   • This is the primary source for BCV communications, circulars, and warnings regarding financial matters, including virtual assets.

2. BCV Circular nº 12/2022, de 16 de setembro de 2022 (Circular on virtual assets):

   • This circular defines virtual assets and virtual asset service providers (VASPs) and outlines AML/CFT obligations for entities dealing with them. While not a securities law, it is the most significant regulatory document specific to crypto from the BCV.
   • Finding it: You would typically navigate to the "Legislação" or "Circulares" section on the BCV website and search for the specific circular number and date. Direct PDF links can change, so searching their site is best. As of my last update, a direct, stable public URL specifically for this circular wasn't universally available, but its existence and content are well-documented.

3. Comissão Nacional do Mercado de Valores Mobiliários (CNMVM) Official Website:

   • URL: https://www.cnmvm.cv/
   • This is the relevant securities regulator. Any specific guidance on crypto securities would originate here or be communicated through their channels. As of now, specific detailed guidance on crypto securities is not prominently featured.

4. Cabo Verdean Securities Market Code (Código do Mercado de Valores Mobiliários):

   • This is the underlying law that would define what constitutes a "security" or "financial instrument" in Cabo Verde. Finding a direct, public, up-to-date online version of this code might require searching legal databases or government gazettes, as specific legislative texts are not always hosted on regulatory websites.

In conclusion, Cabo Verde is taking a cautious approach, prioritizing financial stability and AML/CFT compliance. While there's no specific "crypto securities law," the existing legal framework for securities would apply to any virtual asset determined to have the characteristics of an investment contract or other traditional financial instrument. Issuers and traders of such tokens would be expected to comply with the general rules of the Cabo Verdean capital market.