Madagascar -- Securities Classification Regulatory Overview

Madagascar does not currently have specific legislation dedicated to the classification and regulation of cryptocurrency tokens. Instead, the country's approach is characterized by a high degree of caution and warnings from its central bank, the Banque Centrale de Madagascar (BCM), which emphasizes that existing financial laws would apply if crypto-related activities fall within their scope.

The BCM views most cryptocurrency activities with skepticism due to risks related to financial stability, consumer protection, money laundering, and illicit financing.

Legal Test for Classifying Tokens as Securities

Given the absence of a specific "crypto-asset law" or an equivalent to the Howey Test, Madagascar would rely on a functional approach based on its existing general financial and securities laws. The determination would be made by assessing the economic substance and characteristics of a token and its offering to see if it qualifies as a "financial instrument," "investment contract," "debt security," or "equity security" under current legislation.

This means:

1. Absence of a Dedicated Crypto Test: There is no specific "Madagascar Test" for crypto securities like the Howey Test in the US.
2. Reliance on Existing Financial Law Definitions: If a token is offered as an investment, promises a return on capital from the efforts of others, represents ownership stakes, or serves as a debt instrument, it would likely be categorized under existing definitions of financial instruments or public offerings of securities.
3. Key Determining Factors: The BCM and relevant authorities would consider:
   • Expectation of Profit: Is the token promoted as an investment with an expectation of profit?
   • Common Enterprise/Efforts of Others: Is the profit derived from the entrepreneurial or managerial efforts of the issuer or a third party?
   • Fundraising: Is the token used to raise capital for a project or enterprise?
   • Rights Conferred: Does the token grant rights akin to shares (e.g., voting rights, share in profits) or debt instruments (e.g., interest payments, repayment of principal)?
   • Transferability and Marketability: Is the token easily transferable and marketed to the public?

Which Tokens Are Considered Securities

Based on the functional approach and the BCM's general warnings regarding investment schemes, tokens likely to be considered securities include:

• Equity Tokens: Tokens representing ownership in a company, granting rights similar to shares (e.g., voting rights, dividends).
• Debt Tokens: Tokens representing a loan or debt instrument, entitling holders to interest payments or repayment of principal.
• Asset-Backed Tokens: Tokens representing a share or claim on real-world assets (e.g., real estate, commodities, art) where the primary purpose is investment.
• Investment Tokens (Security Tokens): Any token where the primary purpose of its issuance is to raise capital and it offers investors an expectation of profit derived from the efforts of others, regardless of its underlying technology. This would encompass many "initial coin offerings" (ICOs) or similar fundraising mechanisms.

Tokens generally less likely to be classified as securities (unless marketed with an investment component):

• Payment Tokens/Cryptocurrencies (e.g., Bitcoin, Ethereum): The BCM has explicitly stated that cryptocurrencies are not legal tender in Madagascar and warns against their use. While not securities themselves, engaging in activities like exchange or trading might fall under other financial regulations if treated as currency exchange or payment services.
• Pure Utility Tokens: Tokens that exclusively provide access to a specific product or service within a network and are consumed for that purpose, without any investment expectation or profit-sharing component. However, even utility tokens can be reclassified as securities if they are sold to the public with a strong emphasis on future value appreciation or speculative investment.

Registration/Exemption Requirements for Token Issuers

If a token is deemed a security or an investment product under existing Malagasy law, then:

• Mandatory Authorization: Any entity issuing such tokens would likely be required to obtain prior authorization from the Banque Centrale de Madagascar (BCM) or another designated financial authority (if a dedicated capital markets authority were established). This would involve being licensed as a financial institution (e.g., credit institution, investment firm), depending on the nature of the token and the issuer's business model.
• Prospectus Requirements: A public offering of securities would typically require the preparation and approval of a detailed prospectus by the relevant regulator to ensure investor protection.
• Lack of Crypto-Specific Exemptions: There are no specific exemptions tailored for crypto token issuers. Any existing exemptions (e.g., for private placements to sophisticated investors, small offerings) would be general financial law exemptions, and their applicability to crypto would be subject to interpretation by the BCM.
• Consequences of Non-Compliance: Operating without authorization or issuing unregistered securities would constitute an illegal financial activity, subject to severe penalties under Malagasy law.

Secondary Trading Rules

Similarly, if a token is classified as a security:

• Regulated Platforms: Any platform facilitating the secondary trading of such security tokens would likely need to be regulated as an exchange, a trading venue, or a brokerage firm, requiring specific authorization from the BCM.
• Market Conduct Rules: Standard market conduct rules, transparency requirements, and anti-manipulation provisions applicable to traditional securities trading would apply.
• AML/CFT Compliance: All entities involved in the trading of financial instruments, including security tokens, would be subject to stringent Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) obligations.

Enforcement Examples

Due to the nascent stage of specific crypto regulation and a generally cautious stance, specific public enforcement examples directly targeting crypto issuers for offering unregistered securities in Madagascar are scarce or non-existent in publicly available records.

However, the BCM has issued strong warnings that serve as a form of "preventative enforcement":

• BCM Communiqué N°001/2023-BCM/DGOPS/SPSF (January 11, 2023): This is the most significant regulatory guidance. It explicitly states that:
  • Cryptocurrencies are not legal tender in Madagascar.
  • Any person or entity offering services related to cryptocurrencies without prior authorization from the BCM acts illegally and is subject to sanctions provided by law.
  • It warns the public about the risks associated with cryptocurrencies, including volatility, lack of regulation, fraud, and money laundering.
  • It implicitly warns that activities involving crypto-assets that fall under existing financial services laws (e.g., payment services, credit institutions, public offerings) require proper authorization.

Enforcement would likely fall under general financial sector laws rather than specific crypto laws, targeting unauthorized financial operations, fraud, or money laundering if such activities involve cryptocurrencies.

Specific Legislation and Regulatory Guidance URLs

The primary guidance comes from the Central Bank:

• Banque Centrale de Madagascar (BCM) Communiqué N°001/2023-BCM/DGOPS/SPSF dated January 11, 2023, titled "Avis et Mise en garde aux opérateurs économiques et au public sur les activités liées aux Crypto-monnaies."
  • URL: https://www.banque-centrale.mg/upload/communique_de_presse/Communiqu%C3%A9_BCM_Crypto-monnaies_Janvier2023.pdf (This link points directly to the PDF of the communiqué on the BCM website).

The general financial laws that would be applied in the absence of specific crypto legislation include:

• Loi n°2019-006 sur les services de paiement: (Law No. 2019-006 on Payment Services) – This law defines and regulates payment service providers. If a token functions as a payment instrument, entities providing related services might fall under this law.
• Ordonnance n°2022-005 sur les établissements de crédit: (Ordinance No. 2022-005 on Credit Institutions) – This governs banking and credit institutions. If a token's issuance or associated activities resemble banking or credit operations, this ordinance would be relevant.
• General Company Law and Anti-Money Laundering (AML) Legislation: These broader legal frameworks would also apply to any entity operating in Madagascar, regardless of the specific financial product.

It's important to note that the regulatory landscape is evolving. Businesses engaging with cryptocurrency in Madagascar should seek specific legal advice to navigate the current environment, which prioritizes caution and adherence to existing financial regulations.