CZECH REPUBLIC Law and Practice Contributed by: Stanislav Šimek, Vojtěch Mlynář and Jakub Dostál, BADOKH
could constitute a collective investment scheme. It concluded that classical on-chain staking, where the provider itself performs the validation of transactions, represents a non-financial activity and fund regulation does not apply. However, this conclusion may differ depending on whether ownership of the crypto-assets is transferred to the provider, and whether the provider retains a portion of the staking rewards. 10.7 Crypto-Related Lending Lending as such is not regulated under MiCA. How - ever, ancillary activities connected with the provision of lending services may in certain cases qualify as a regulated service (eg, custody) in which case, a licence from the CNB may be required. Where lending services fall outside MiCA’s scope, the provider may require authorisation from the FAU as a virtual asset service provider. If a platform pools crypto-assets from multiple lend - ers to on-lend them collectively, the CNB may exam - ine whether this constitutes a collective investment scheme. 10.8 Cryptocurrency Derivatives Cryptocurrency derivatives qualify as financial instru - ments under MiFID II and are excluded from MiCA’s scope. Where a crypto-derivative takes the form of a transfer - able security, a public offering may also trigger pro - spectus obligations under the Prospectus Regulation. With the growing popularity of perpetual cryptocur - rency exchanges usually offering high leverage, ESMA has warned that such products are likely to fall within the scope of the existing national product interven - tion measures applicable to contracts for difference (CFDs). 10.9 Decentralised Finance (DeFi) Crypto-asset services provided in a fully decentralised manner without any intermediary fall outside MiCA’s scope. However, the scope of this exception remains unclear and difficult to satisfy in practice. Most DeFi platforms retain some degree of centralisation, wheth - er through insiders controlling governance tokens or
upgradeable smart contracts controlled by a limited group. Where a DeFi platform deals with security tokens, such platform would come within the MiFID II/CMUA framework. However, if the service is genuinely pro - vided by autonomous software governed by a decen - tralised voting mechanism across a large number of anonymous wallets, identifying a liable legal person becomes challenging. 10.10 Regulation of Funds Under Czech law, collective investment funds are generally prohibited from directly investing in crypto- assets, as these do not qualify as eligible assets under the applicable regulatory framework. Investment into certain security tokens may potentially be permissible. Qualified investor funds offer greater flexibility, but direct crypto-investment remains difficult in practice, due to the reluctance of licensed asset managers and depositaries to service crypto-focused funds. In practice, Czech cryptocurrency funds gain indirect exposure to blockchain assets through investments in foreign crypto-funds, crypto-related equities or exchange-traded funds. 10.11 Virtual Currencies The term “virtual currency” is defined in the Czech AML Act and refers to crypto-assets that fall under MiCA, as well as to certain NFTs. Virtual currencies in the traditional sense (ie, tokens functioning solely as a means of exchange on a block - chain) would usually fall into the category of crypto- assets other than asset-racked tokens and e-money tokens, requiring only a white paper prior to issuance. 10.12 NFTs NFTs fall outside MiCA’s scope. However, entities providing services related to NFTs, such as operat - ing an NFT trading platform or exchange, may require authorisation from the FAU as virtual asset service providers. That said, the NFT classification must be assessed on a case-by-case basis. Where NFTs are issued in
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