Apr 2024

Czechia

Law Over Borders Comparative Guide:

Cryptoassets

Top

1 . Are cryptoassets (including, for example, cryptocurrencies, stablecoins and non-fungible tokens) defined and, if so, what are the major elements?

Current regulatory framework

As of 1 February 2024, Czech law does not contain a general definition of cryptoassets, but only a specific definition of a virtual asset in relation to anti-money laundering regulations. A virtual asset is defined by Czech law as “an electronically storable or transferable unit that is capable of performing a payment, exchange or investment function, whether or not it has an issuer, unless it is a security, an investment instrument, or a monetary instrument”.

Future regulatory framework

The cryptoasset regulatory landscape in Czechia will change significantly when Regulation (EU) 2023/1114 on markets in cryptoassets (MiCAR) will become applicable (partially) on 30 June 2024 and (fully) on 30 December 2024. Under the MiCAR, a cryptoasset will be defined as “a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology”. This definition shall apply to all types of fungible cryptoassets, including cryptocurrencies and stablecoins, but excluding non-fungible assets such as NFTs.

Top

2 . What are the major laws/regulations specifically related to cryptoassets?

Current regulatory framework

At present (as of 1 February 2024) the Czech laws specifically regulating cryptoassets or doing business in relation to cryptoassets are:

  • Trade Licensing Act (Act No. 455/1991), which sets out rules for obtaining a trade licence to provide virtual asset services; 
  • Anti-Money Laundering Act (Act No. 253/2008 on Certain Measures Against Money-Laundering and Financing of Terrorism), which regulates the obligations of a virtual asset services provider in relation to customer due diligence; and
  • DLT Pilot Regulation (Regulation (EU) 2022/858), which is a pilot scheme regulating distributed ledger technology including regulating certain market infrastructures trading with cryptoassets where they qualify as investment (financial) instruments.

The compliance of virtual asset services providers with the above is currently supervised by:

  • the Czech Trade Licensing Office (živnostenský úřad) in relation to the Trade Licensing Act;
  • the Financial Analytical Office (Finanční analytický úřad) in relation to the Anti-Money Laundering Act; and
  • the Czech National Bank (Česká národní banka) in relation to the DLT Pilot Regulation.

Future regulatory framework

The above laws will be supplemented and superseded by a complex European regulatory framework consisting of:

  • Markets in Crypto-assets Regulation (MiCAR) (applicable partially from 30 June 2024, and fully from 30 December 2024);
  • Regulation (EU) 2023/1113 on information accompanying transfers of funds and certain cryptoassets (TFR) (applicable from 30 December 2024);
  • Regulation (EU) 2022/2554 on digital operational resilience for the financial sector (DORA) (applicable from 17 January 2025); 
    and their implementing legislation to be adopted during 2024 by the European Commission.

It is expected that the Czech National Bank, as the Czech financial markets supervisory authority, shall be the regulatory authority responsible for supervision over MiCAR and DORA.

Top

3 . How are different types of cryptoassets regulated?

Current regulatory framework

As of 1 February 2024, the basic differentiation of cryptoassets is whether they qualify as financial instruments. The following qualify as financial instruments: so-called “security tokens” (i.e. transferable securities (such as shares or bonds)); money-market instruments (such as treasury bills or deposit certificates); or units in collective investment undertakings or derivatives where issued by means of distributed ledger technology. 

These cryptoassets are governed by the regulatory framework applicable to such financial instruments, such as the Act No. 256/2004, on Capital Market Business (the Czech transposition of the EU Directive 2014/65 on markets in financial instruments), EU Prospectus Regulation 2017/1129 and Act No. 240/2013, on Management Companies and Investment Funds (the Czech transposition of the EU Directives on undertakings for collective investment in transferable securities, and alternative investment funds managers).

Other types of cryptoassets are currently not specifically regulated by Czech law.

Future regulatory framework

In addition to the above, stablecoins shall become specifically regulated under MiCAR as of 29 June 2024, either in the form of “asset-referenced tokens” (cryptoassets purporting to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies), or in the form of “e-money tokens” (cryptoassets purporting to maintain a stable value by referencing the value of one official currency).

All other types of cryptoassets, other than asset-referenced tokens and e-money tokens, will also become regulated under MiCAR as of 30 December 2024. However, NFTs and similar non-fungible cryptoassets shall remain outside of the MiCAR framework.

Top

4 . Is there an authorisation/licensing regime applicable to cryptoasset issuers/providers/exchanges and, if so, what are the requirements?

Current regulatory framework

As of 1 February 2024, the following activities — if operated in Czechia — relating to virtual assets require a trade licence (živnostenské oprávnění) in Czechia: 

  • purchase, sale, exchange, storage, management, transferring or brokering of virtual assets;
  • issuance of virtual assets;
  • lending of virtual assets (other than in the form of a consumer credit which would be subject to separate regulation); and
  • provision of financial services in relation to the offer or sale of virtual assets. 

The trade licensing regime is very simple and straightforward. The application for the trade licence may be filed with any of the approximately 200 Trade Licensing Offices (živnostenský úřad) — these are located in major cities and towns across Czechia. There are currently no regulatory or capital requirements to apply for the virtual asset services trade licence but the applicant must confirm in writing that it has full legal capacity (plně svéprávné) and that it has not been convicted of an intentional crime in any jurisdiction in connection with any business activity. The statutory deadline for issuance of the virtual asset services trade licence is five business days from filing with the relevant Licensing Office. 

In May 2022, there were approximately 10,000 licensed virtual asset services providers in Czechia. A public register of all holders of the virtual asset services licence is available online at www.rzp.cz. Failure to obtain a licence is subject to an administrative penalty of up to CZK 500,000, but unlicensed businesses that are operational for longer than six months may also be subject to criminal prosecution. 

Under the current regulatory framework, the following cryptoasset related activities require a licence issued by the Czech National Bank:

  • trading with derivatives where the underlying assets are cryptoassets — in such case a licence to operate as a securities broker (obchodník s cennými papíry) issued by the Czech National Bank under the Markets in Financial Instruments Directive (MiFID) is required;
  • management of investment undertakings when funds are invested in cryptoassets — in such case a licence to operate as a management company (investiční společnost) or self-governed investment fund (samosprávný investiční fond) issued by the Czech National Bank under the Undertakings for Collective Investment in Transferable Securities Directive/Alternative Investment Funds Manager Directive framework is required; and
  • provision of payment services relating to fiat currencies, typically when operating a cryptoassets exchange — in such case a licence to operate as a payment institution (platební instituce) issued by the Czech National Bank under the Payment Services Directive (PSD) framework is required.

Future regulatory framework

On or after 30 December 2024, any cryptoasset services provider will need to obtain a full-fledged licence issued by the Czech National Bank under MiCAR for any of the following activities operated in Czechia: 

  • providing custody and administration of cryptoassets;
  • operation of a trading platform for cryptoassets;
  • exchange of cryptoassets for funds;
  • exchange of cryptoassets for other cryptoassets;
  • execution of orders for cryptoassets on behalf of clients;
  • placing of cryptoassets;
  • reception and transmission of orders for cryptoassets on behalf of clients;
  • providing advice on cryptoassets;
  • providing portfolio management on cryptoassets; and
  • providing transfer services for cryptoassets on behalf of clients.

In our experience the licensing application process to the Czech National Bank is quite lengthy, entails detailed scrutiny and several rounds of comments on the documents with the regulator, and may take on average between six and 18 months.

According to the draft MiCAR implementing bill published by the Czech Government in October 2023, anyone who will hold a virtual asset services trade licence issued on or before 29 December 2024 will be authorised to provide cryptoasset related services on the basis of such trade licence until 1 July 2026. We therefore expect that the number of issued trade licences will rise significantly during 2024.

Top

5 . Is the promotion of cryptoassets to consumers or investors regulated and, if so, how?

Current regulatory framework

Under the current regulatory framework, security tokens (i.e., cryptoassets which qualify as investment/transferable securities) may be offered to the public in Czechia only after prior publication of a prospectus approved by the Czech National Bank. Standard de minimis exemptions apply, i.e. the publication of a prospectus is not required in relation to: offers addressed solely to qualified investors or to fewer than 150 persons (other than qualified investors); offers where the denomination per unit is at least EUR 100,000; or offers with minimum total consideration of at least EUR 100,000 per investor.

Any investment services relating to security tokens, as well as to derivatives whose underlying assets are cryptoassets, such as reception, transmission, and execution of orders, placing, or investment advice, may be provided to investors only by entities which are licensed by the Czech National Bank to operate as a securities broker (obchodník s cennými papíry).

Promotion of any other cryptoassets to consumers or investors in Czechia, or provision of services in Czechia in relation to other types of cryptoassets, is currently not specifically regulated. When dealing with consumers, the issuers/providers shall also adhere to the general consumer protection laws contained in Act No. 634/1992 on Consumer Protection (implementing, among others, the Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market) and the Civil Code Act No. 89/2012 (implementing, among others, Directive 93/13/EEC on unfair terms in consumer contracts).

Future regulatory framework

On or after 30 June 2024:

  • Issuers of asset-referenced tokens will need to obtain an authorisation from the Czech National Bank to offer these tokens to the public in Czechia, provided that the issue volume exceeds EUR 5,000,000 calculated over the last 12 months. To obtain such authorisation, the issuer will need to present to the Czech National Bank, among others, a cryptoasset whitepaper, a programme of operations, or its internal control mechanisms and risk management procedures.
  • Issuers of e-money tokens will be limited to credit or e-money institutions only, and such issuers will need to notify the Czech National Bank and then publish a cryptoasset whitepaper on their public website.

In addition, on or after 30 December 2024, any issuer of cryptoassets (excluding security tokens, asset-referenced tokens and e-money tokens) may offer these to the public in Czechia only after notification to the Czech National Bank and publication of a cryptoasset whitepaper. The whitepaper requirement will not be mandatory for: offers addressed to fewer than 150 persons; offers with total consideration below EUR 1,000,000; or offers addressed solely to qualified investors.

The rules for public offering of security tokens (i.e., cryptoassets which qualify as investment/transferable securities) mentioned above will also continue to apply after 30 June 2024 and 30 December 2024, respectively.

Top

6 . What anti-money laundering requirements apply to cryptoassets?

Any entity providing cryptoasset-related services in Czechia is subject to anti-money laundering requirements under the Anti-Money Laundering Act. These requirements include obligations relating to: 

  • onboarding of new clients (identification and customer due diligence of the client, including checking if they are a politically exposed person or subject to sanctions and identifying the ultimate beneficial owner and source of assets or funds used in the transaction); 
  • confidentiality; 
  • record-keeping; and 
  • reporting of suspicious transactions to the Financial Analytical Office. 

Any suspicious transactions must be reported to the Financial Analytical Office without undue delay. In addition the cryptoasset service provider must delay the execution of any suspicious transaction by, at least, 24 hours from the client’s instruction if there is material risk that the immediate execution would prevent recovery of any proceeds from criminal activity.

Top

7 . How is the ownership of cryptoassets defined or regulated?

In the broadest sense, cryptoassets are regulated under Czech law as property (majetek), i.e. as an asset belonging to a person. Specifically, cryptoassets qualify as immaterial movable assets (nehmotná movitá věc) under Czech civil law. As such, cryptoassets may be owned, assigned or transferred under a contract, pledged or otherwise used as security, or otherwise disposed of under Czech law. There are no licensing requirements applicable to the ownership of cryptoassets — any person may own cryptoassets.

Notably, although certain cryptoassets may qualify as transferable securities under the financial regulatory framework, cryptoassets generally do not qualify as securities (cenné papíry) under Czech civil law. Therefore, the specific transfer or registration rules applicable to securities (such as contract form or mandatory registration with the central securities depositary or other licensed entity) do not apply to cryptoassets.

Top

8 . How are Decentralised Autonomous Organisations (DAOs) treated?

DAOs are not specifically regulated under Czech law. Considering the DAO’s purpose, there are several options for how to legally structure it. The first option is an unregistered partnership without a legal personality (společnost) on the basis of a contract between the members. However, this structure, though simple and low-cost, has significant disadvantages such as unlimited liability of members or co-ownership of all assets contributing to the DAO. Another option may be one of the many forms of legal corporations under Czech law, such as an association (spolek), a foundation (nadace), a trust (svěřenský fond), or any business corporation (obchodní korporace). In particular, the business corporation structure allows the members to limit their liability vis-à-vis third parties.

Top

9 . Are there any particular laws or rules which apply in the event of the crypto bankruptcy or insolvency?

There are no specific rules in Czechia relating to the bankruptcy of cryptoasset issuers or services providers. Under the general rules provided for in Act No. 182/2006 on Insolvency Proceedings, if any entity becomes insolvent (unable to pay its debts) or overindebted (its debts exceed its assets), it is required to file for insolvency. The insolvency court would then decide on resolution of the insolvency by way of a liquidation (konkurs) or, in a minority of cases and depending on the facts of the case, a restructuring (reorganizace). During the liquidation insolvency process, the assets of the insolvent entity are managed by a court-appointed administrator who is mandated to liquidate the assets of the company and distribute the proceeds proportionally among the insolvent entity’s creditors. If any cryptoassets form part of the insolvency estate, then the administrator may sell these to any third party to generate recoveries either in a public auction, or, with the court’s consent, in a private sale.

The creditors of the insolvent entity may obtain a secured claim only if their receivables are secured by the right of pledge (zástavní právo), retention (zadržovací právo), real estate negative pledge (omezení převodu nemovitosti), or security assignment (zajišťovací převod práva nebo postoupení pohledávky). In such case, the secured creditors’ claims are satisfied from the proceeds of the sale of the secured assets.

In case of an insolvency of a cryptoasset issuer, the legal position of the holders of the cryptoassets would depend on the rights and obligations attached to such cryptoassets. If the cryptoassets constitute a receivable of the holder against the issuer (such as bonds or similar cryptoassets, or even utility tokens), then the claims for such receivables must be filed in the insolvency proceedings and will be satisfied by the administrator (together with other claims in the same group).

Top

10 . Is a smart contract enforceable as a legal contract?

Smart contracts are valid and enforceable under Czech law if they meet all the requirements required under Czech law to constitute a contract. Such requirements include that the agreement is made between parties with full legal capacity (plně svéprávné), by way of a committed, clear and comprehendible expression of will (vážný, určitý a srozumitelný projev vůle) through an offer (nabídka) and an acceptance (poptávka), compliant with law and good morals (dobré mravy), and absent of error (omyl) or impossibility of performance (nemožnost plnění). Provided that these conditions are met — and we believe that in most cases they will be — then such smart contracts are enforceable under Czech law, irrespective of their form as an algorithm captured by a particular programming language.

Top

11 . What recourse does a victim of crypto fraud have?

Czech criminal law is based on public prosecution of all criminal offences. Therefore, the victim of crypto fraud shall report the fraud to the law enforcement authorities (the police or the prosecutor’s office) which will then initiate criminal investigation, potentially resulting in indictment and conviction of the perpetrators. 

The victim itself may not obtain any freezing or proprietary injunctions or third-party disclosure orders, these are all in the remit of the police, the public prosecutor and the court. On the other hand, the victim may access the case files and make suggestions to the law enforcement authorities to obtain these measures; however the authorities have no obligation to comply or even process such requests. 

As regards damages caused by criminal fraud, the victim may claim these against the perpetrators either independently by a lawsuit in a civil court proceeding or, more commonly, by raising the claim directly within the criminal proceeding. If the damages are awarded, these must be enforced against the perpetrators through a court-appointed bailiff (soudní exekutor).

Top

12 . Are there any other ongoing legal or regulatory consultations or other legal frameworks in the pipeline relating to cryptoassets?

As indicated above, a major regulatory framework relating to cryptoassets will become applicable in Czechia during 2024 and 2025, including MiCAR, DORA and TFR. 

We also expect further guidance from the Czech National Bank on the definition and distinction of which cryptoassets do or do not constitute transferable securities or other investment instruments. The line between these categories is not entirely clear but will be crucial for the applicability of the correct regulatory regime.

EXPERT ANALYSIS

Chapters

Australia

Emily Shen
Peter Reeves
Robert O'Grady

Bermuda

Andrew Chissick
Daniel Hayward-Hughes
Natalie Neto
Rachel Nightingale
Sara Hall
Steven White

British Virgin Islands

Andrew Chissick
Daniel Hayward-Hughes
Iain Tucker
Iona Wright
Jan Golaszewski
Sara Hall

Canada

Ana Badour
Barry Sookman
Heather Meredith
Hugo Babos-Marchand
Lori Stein
Shane D'Souza

Cayman Islands

Daniel Hayward-Hughes
Ian Mason
Jan Golaszewski
Jennifer Maughan
Sara Hall
Lucy Frew

Cyprus

Christopher Lytras
Leonidas Grivas

France

Hubert de Vauplane

India

Rohan Bagai
Shagun Badhwar

Italy

Alessandro M. Lerro

Portugal

Ashick Remetula
Carolina Nagy Correia
David Silva Ramalho
Luís Possolo
Márcia Tomás Pires
Nicole Fortunato
Vera Esteves Cardoso
Nuno Gundar da Cruz

Singapore

Stanley Tan
Yam Wern-Jhien

Taiwan

Eddie Hsiung

United Arab Emirates

Alishia K. Sullivan
Andrea Dougall
Katherine Seager

United Kingdom

Jane Colston
Jessica Lee

United States

Clara Krivoy
Sharix Alicea
Stephen Palley

Powered by SimSage

Jobs from Nicholas Scott

3-6 PQE Corporate M&A Associate

Job location: London

Projects/Energy Associate

Job location: London

Popular Articles

Latest Articles

Former Labour leader to head Bar bullying review

43m

Fenwick Elliott rings in new senior partner after 23 years

20h

King & Spalding adds four-partner finance team in London from Cadwalader

23h

ExxonMobil names former Fox lawyer as next GC

1d

Brands, beauty and big issues: high-profile US cases to watch in 2024

1d