Finland -- Securities Classification Regulatory Overview

Finland, as a member of the European Union, classifies cryptocurrency tokens as securities primarily based on the definitions provided by existing EU financial services legislation, rather than a separate, specific "crypto-securities" law. The key is to assess whether a given token falls within the scope of "transferable securities" or other "financial instruments" under these regulations.

The upcoming Markets in Crypto-Assets Regulation (MiCA) (EU) 2023/1114 will provide a comprehensive framework for crypto-assets not already covered by existing financial services legislation. This means that if a crypto token is deemed a security under current law, MiCA will not apply to it; instead, traditional securities law will continue to govern it. MiCA primarily covers "crypto-assets" that are not financial instruments (securities) or e-money.

The Legal Test Used (Howey Test Equivalent)

Finland's Financial Supervisory Authority (FIN-FSA) and the broader EU framework do not use the U.S. "Howey Test" directly. Instead, the assessment revolves around the definitions of "transferable securities" and "financial instruments" as outlined in:

1. Directive 2014/65/EU on Markets in Financial Instruments (MiFID II): This directive defines "financial instruments," which include "transferable securities."
2. Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (Prospectus Regulation): This regulation further elaborates on "securities."

The FIN-FSA emphasizes a substance-over-form approach, meaning the actual characteristics, rights, and obligations embedded in or conferred by the token are crucial, regardless of how it is named or marketed.

Key Criteria for Classification as a Security (or Financial Instrument):

FIN-FSA and ESMA (European Securities and Markets Authority) guidance indicate a token is likely a security if it:

• Confers Rights Similar to Traditional Securities: This is the core. Does the token grant rights typically associated with shares (e.g., ownership, voting rights, share in profits), bonds (e.g., claim to interest payments, repayment of principal), or other forms of securitized debt?
• Is Negotiable/Transferable: Can the token be freely transferred on the capital market?
• Represents a Claim against an Issuer: Does the token represent a financial claim against an identifiable issuer, such as a right to future payments, dividends, or a share in profits?
• Has an Investment Purpose: While not the sole determinant, if the primary purpose from an investor's perspective is speculation or expectation of profit from the efforts of others (similar to Howey's "expectation of profit" from a "common enterprise"), this contributes to the assessment, especially when combined with other security-like features.
• Is not a Pure Utility Token: A token whose sole purpose is to provide access to a product or service, and which cannot be readily exchanged for other financial instruments or money, is less likely to be considered a security. However, if the "utility" is largely hypothetical or deferred, and the token is marketed primarily as an investment, it might be scrutinized.
• Is not E-money: If the token qualifies as electronic money under the E-money Directive (Directive 2009/110/EC), then it is regulated as e-money, not a security. MiCA will also cover certain "e-money tokens."

The assessment is always case-by-case, considering all features of the token and the circumstances of its offering.

Which Tokens Are Considered Securities

Based on the above criteria, certain types of tokens are more likely to be classified as securities:

1. Equity Tokens: Tokens that represent ownership in a company, confer voting rights, or entitle holders to a share of future profits (dividends). These are analogous to traditional shares.
2. Debt Tokens: Tokens that represent a loan made to an issuer, entitling the holder to interest payments and/or repayment of the principal amount. These are analogous to traditional bonds or debt instruments.
3. Hybrid Tokens: Tokens that combine features of utility and security, where the security-like features are predominant or significant enough to qualify them under existing securities law (e.g., a "utility" token that also guarantees a minimum return or entitles holders to a share of the platform's revenue).
4. Security Tokens: Any token specifically designed to represent an underlying traditional security or a financial instrument.

Tokens Generally NOT Considered Securities (but may be covered by MiCA or e-money regulations):

• Payment Tokens (Pure Cryptocurrencies): Such as Bitcoin or Ether (in its native form), whose primary function is a medium of exchange or a store of value, and which do not grant specific rights against an identifiable issuer.
• Pure Utility Tokens: Tokens whose sole purpose is to provide access to a specific product or service on a blockchain platform, and which do not represent an investment or financial claim against the issuer.

Registration/Exemption Requirements for Token Issuers

If a crypto token is classified as a security, the issuer must comply with the full suite of EU and Finnish securities market regulations:

1. Prospectus Requirements (Prospectus Regulation (EU) 2017/1129):

   • General Rule: If securities are offered to the public or admitted to trading on a regulated market in Finland, a prospectus approved by the FIN-FSA (or a competent authority in another EU Member State, with passporting rights) is generally required. The prospectus must provide detailed information about the issuer, the securities, and the offer.
   • Exemptions: The Prospectus Regulation provides several exemptions from the obligation to publish a prospectus:
     • Offers where the total consideration in the EU is less than EUR 1 million over a 12-month period (Member States can raise this threshold up to EUR 8 million, for Finland it is EUR 8 million, requiring a simplified information document).
     • Offers addressed solely to qualified investors.
     • Offers addressed to fewer than 150 natural or legal persons per Member State, other than qualified investors.
     • Offers where the minimum denomination per unit is EUR 100,000.
     • Offers where the total consideration is less than EUR 8 million over 12 months (simplified disclosure document required, rather than full prospectus).

2. MiFID II Authorization (for Investment Services): If an issuer or an entity involved in the token's lifecycle provides investment services (e.g., advice, placement, dealing on own account, operating a trading venue) related to security tokens, they must be authorized by the FIN-FSA under MiFID II.

Secondary Trading Rules

If a crypto token is classified as a security:

• Regulated Markets: If admitted to trading on a regulated market (like Nasdaq Helsinki), it falls under the full scope of MiFID II, the Market Abuse Regulation (EU) No 596/2014 (MAR), and other relevant EU and national securities laws regarding transparency, market integrity, and investor protection.
• MTFs/OTFs: Trading on multilateral trading facilities (MTFs) or organised trading facilities (OTFs) also requires MiFID II authorization and compliance with specific rules for such venues.
• Unregulated Platforms: Even if traded on an unregulated crypto exchange, the token's underlying classification as a security means that any entity engaging in investment services or market manipulation related to it could be subject to enforcement action under Finnish financial law.

Enforcement Examples

While specific public enforcement cases directly focusing on the classification of a crypto token as a security in Finland leading to fines are less common than general warnings, the FIN-FSA actively monitors the market and has issued guidance:

• FIN-FSA warnings and guidance: The FIN-FSA regularly issues warnings and guidance on the risks of virtual currencies and the regulatory requirements for entities dealing with them. These often highlight the need to assess tokens against existing financial legislation. They emphasize that any entity offering tokens that qualify as securities without the necessary authorizations or prospectus would be acting unlawfully.
• Focus on Unauthorized Activities: Enforcement actions are more likely to target:
  • Entities providing unauthorized investment services related to tokens (whether or not they are securities).
  • Entities offering securities to the public without a valid prospectus.
  • Non-compliance with AML/CFT regulations for Virtual Asset Service Providers (VASPs).
• No specific landmark "token-is-security" fine in Finland: Unlike some other jurisdictions, FIN-FSA's approach has been largely supervisory and preventative, pushing for clarity and compliance rather than widespread punitive actions specifically on the classification front. However, the legal framework is clear: if a token is a security, all associated laws apply, and non-compliance would lead to enforcement under the Finnish Securities Markets Act and other relevant financial legislation.

Specific Legislation and Regulatory Guidance URLs

• FIN-FSA Guidance on Virtual Currencies/Crypto Assets:
  • FIN-FSA's position on virtual currencies (2018): https://www.finanssivalvonta.fi/globalassets/en/publications/fsa-bulletin/2018/fsa_bulletin_2018_2_en_finanssivalvonnan_kannanotto_virtuaalivaluuttoihin.pdf (Note: This is an older guidance, but reflects the general approach)
  • General information on virtual currency service providers: https://www.finanssivalvonta.fi/en/regulated-entities/virtual-currency-providers/
• Markets in Financial Instruments Directive (MiFID II) - Directive 2014/65/EU:
  • EUR-Lex: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014L0065
• Prospectus Regulation (EU) 2017/1129:
  • EUR-Lex: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32017R1129
• Markets in Crypto-Assets Regulation (MiCA) (EU) 2023/1114:
  • EUR-Lex: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1114
• Finnish Securities Markets Act (Arvopaperimarkkinalaki):
  • Finlex (official Finnish legislation portal - in Finnish/Swedish): https://www.finlex.fi/fi/laki/ajantasa/2012/20120746

It is crucial for any entity operating with crypto tokens in Finland to conduct a thorough legal assessment of its specific token(s) against these regulations to ensure compliance.