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Cryptocurrencies and Initial Coin Offerings under EU law


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Legal research ppt on the legal qualification of cryptocurrencies, initial coin offerings and tokens under EU law. Covers the (securities) regulation of crypto and digital assets in the EU. Are tokens securities? A comparative overview is given of different member states, including France, Estonia, malta and the United Kingdom.

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Cryptocurrencies and Initial Coin Offerings under EU law

  1. 1. On the legal qualification of digital assets and cryptocurrencies across European jurisdictions Digital assets in the EU data up-to-date as of 19-10-2018 (at minimum)
  2. 2. DISCLAIMER The creation of this report’s content has been approached from a best effort initiative. It is made available by Law & Blockchain Consultancy for general education and information purposes only and is not intended, and should not be used as, professional or legal advice of any kind. Law & Blockchain Consultancy does not assume any responsibility for errors or omissions in the contents of this report. In no event shall these parties be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage arising from, or in connection with, the use of this report. Every effort is made to keep this report consistent and as accurate as possible. Any critique, errors or miscalculations is welcomed for re-evaluation and modifications. For further inquiries contact
  3. 3. EXECUTIVE SUMMARY 3 • EU legislation of digital currencies and crypto-assets is in an early stage. • A number of key regulators and policy makers have undertaken efforts to provide a degree of regulatory certainty while mapping out risks related to digital currencies and crypto-assets. • Digital currencies do not currently classify under key legal definitions of EU financial law, with the sole exception being the field of Anti-Money-Laundering. • While there is a degree of harmonization across European Member States, there are still substantial differences between Member State regulations, especially with regards to the regulation of crypto-assets under securities laws. • Smaller Member States tend to participate in jurisdictional competition by providing legal certainty to crypto businesses
  4. 4. WHY HAVE WE CREATED THIS REPORT? ● Understand the legal qualification of digital currencies and crypto-assets in the EU ● Identify the main regulators on the EU & Member State level ● Provide insights into differing legal interpretations across EU Member States ● Identify which EU Member States best facilitate the crypto industry ● Define the key areas of regulatory uncertainty 4
  5. 5. CONTENTS 5 6 Regulation on the EU-level An overview of the key EU regulators, regulations and legal definitions 14 Regulatory approaches on the Member State level The spotlight on the three main regulatory approaches taken by Member States 18 In-depth overview of regulations per Member State Mapping available guidance and applicable regulations on digital currencies and crypto assets per Member State
  6. 6. There are a number of key regulators and policy makers on the supra-national level 6 Proposes Legislation Co-adopt Legislation
  7. 7. EU regulators and policy makers have extensively researched the applicability of EU law to virtual currencies and crypto-assets YEAR INSTITUTION TITLE CONTENT 2018 Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures Provides market overview and contains a risk assessment, a gap analysis and a description of regulatory challenges 2018 Virtual currencies and central banks monetary policy: challenges ahead Describes prospects for digital currencies, concludes they are unlikely to pose a threat to central banks, but a challenge for financial regulators 2018 Cryptocurrencies and blockchain: Legal context and implications for financial crime, money laundering and tax evasion Describes crypto industry, main players involved and risks relating to AML & the regulatory framework. 2018 Virtual Currencies, monetary dialogue Describes money and virtual currencies, and derives implications for financial market regulations and monetary policy 2018 Warning for consumers on the risks of virtual currencies Warning about scams, volatility and the risks involved in buying virtual currencies 2018 Own Initiative Report on Initial Coin Offerings and Crypto-Assets Analyzes types of tokens and the applicability of EU financial law, and provides normative overview of required response in the field of securities laws. 2019 Advice on ICO's and Crypto-assets Analyzes token offerings from the perspective of EU securities regulation. Annex 1 gives insight into high-level differences between Member States 2019 Report on Crypto Assets Advice to the European Commission, which describes basics taxonomy of crypto-assets (payment tokens, investment tokens, utility tokens), observes applicability current financial regulations and gives advice on AML 7
  8. 8. 8 Defines Virtual Currency as: “a digital representation of value that is neither issued by a central bank or public authority nor necessarily attached to a fiat (conventional) currency, but is accepted by natural or legal persons as a means of exchange and can be transferred, stored or traded electronically” Defines Crypto Asset as an asset that: a) “depends primarily on cryptography and distributed ledger technology (DLT) or similar technology as part of its perceived or inherent value, b) is neither issued nor guaranteed by a central bank or public authority,27 and c) can be used as a means of exchange and/or for investment purposes and/or to access a good or service. “ Distinguishes between payment tokens, utility tokens and investment tokens. Defines Virtual Currency as: “a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community” Defines a Crypto Asset as: “a new type of asset recorded in digital form and enabled by the use of cryptography that is not and does not represent a financial claim on, or a liability of, any identifiable entity” Does not define Virtual Currency as such, but includes them into the term ‘crypto assets’ Defines a Crypto Asset as: “a type of private asset that depends primarily on cryptography and Distributed Ledger Technology (DLT)” Distinguishes between Payment-type, Utility- type & Investment-type tokens. See next slide. There is no uniform understanding of ‘Virtual Currency’ among regulators Each regulator maintains slightly different (non-binding) definitions in their policy guidance/research reports.
  9. 9. 9 The ESMA uses the Swiss regulator’s (FINMA) system of token taxonomy These three token classifications are not mutually exclusive. Hybrid tokens have characteristics of multiple categories. Payment tokens “are a means of payment for acquiring goods or services. The holder has no claim on the issuer. These tokens are virtual currencies in the true sense of the word. The most prominent example is Bitcoin.” Utility tokens “are intended to provide access to a specific application or service but are not accepted as a means of payment for other applications.” Asset tokens “represent assets such as a debt or equity claim on the issuer. Asset tokens promise, for example, a share in future company earnings or future capital flows. In terms of their economic function, therefore, these tokens are analogous to equities, bonds or derivatives. Tokens which enable physical assets to be traded on the blockchain also fall into this category.”
  10. 10. 10 Virtual currencies are not defined in key EU financial legislation However, we do know what virtual currencies are not. ● Virtual currencies are not equivalent to cash or scriptural money ● Virtual currencies are not a form of legal tender ● Virtual currencies generally don’t qualify as ‘electronic money’ under the E-Money Directive as they don’t give a monetary claim on any issuer(s). Some stable coin designs are a notable exception. Art. 2 (2) E-Money Directive: ‘electronic money’ means electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions as defined in point 5 of Article 4 of Directive 2007/64/EC, and which is accepted by a natural or legal person other than the electronic money issuer Stable coins and digital currencies as Facebook’s proposed Libra might qualify as electronic money as there is a claim on the issuer. ● Virtual currencies generally don’t qualify as ‘transferable securities’ under MiFID II, as they fall under the ‘instruments of payments’ exemption Art. 4 (1) (44) of MIFiD II: ‘transferable securities’ means those classes of securities which are negotiable on the capital market, with the exception of instruments of payment, such as: (a) shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depositary receipts in respect of shares; (b) bonds or other forms of securitised debt, including depositary receipts in respect of such securities; (c) any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures; ● Crypto-assets might be ‘transferable securities’, depending on the design of the asset and regulations at the Member State level.
  11. 11. Sources: Centre of Social and Economic Research Warsaw 2012 report. The only definition of Virtual Currency in EU law is in the field of Anti-Money Laundering The only definition of Virtual Currencies is found in the 5th AML Directive The recently amended 5th AML Directive has included custodial wallets and crypto-exchanges in its scope, and therefore defined Virtual Currencies as a “a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically” The only interpretation of Bitcoin by the European Court of Justice was in Hedqvist In its judgement, the ECJ stated that Bitcoin, as a direct (contractual) means of payment, cannot be regarded as a “current account or deposit account, a payment or a transfer”, nor as “debt, cheques and other negotiable instruments” referred to in article 135 (1)(d) VAT Directive. However, according to the ECJ, an exchange of services for Bitcoin does fall under the exemption for transactions involving “currency, bank notes and coins used as legal tender” as laid out in article 135(1)(e) VAT Directive. 11
  12. 12. These are the key EU Regulations and Directives that are potentially applicable to crypto businesses REGULATION/DIRECTIVE POTENTIALLY APPLICABLE TO Prospectus Directive & Prospectus Regulation Token Issuers, investment funds Markets in Financial Instruments Directive (MiFID II) Exchanges, token issuers, wallet providers, brokers, custodians, investment funds, other issuers of financial instruments, other service providers Anti-Money Laundering Directive (5th AMLD) Exchanges and custodial crypto wallets specifically, as well as all ‘regular’ AMLD- regulated parties. Transparency Directive Token issuers Electronic Money Directive Token issuers (stable coins) Payment Services Directive 2 (PSD 2) Stable coin issuers, payment networks Central Securities Depositories Regulation (CSDR) Token issuers, CSDs, CCPs General Data Protection Regulation (GDPR) All parties that process personal data Undertakings for Collective Investment in Transferable Securities Directive (UCITSD) Investment funds, custodians Alternative Investment Fund Directive (AIFMD) Investment funds, custodians VAT Directive All parties that sell goods or provide services in the EU. Potentially also token issuers Unfair Commercial Practices Directive Token issuers, all parties that sell goods or provide services to consumers 12
  13. 13. While EU Directives and Regulations harmonize legislation across the EU, the regulation of digital currencies is not fully harmonized ● While EU Regulations are (upon entry into force) fully applicable across the entire EU, this is not the case for EU Directives ● EU Directives state the legal results to be achieved by Member States, without dictating the means to do so. Member States are therefore free to transpose EU Directives into national law as they see fit, leading to differences between Member States’ regulation ● Moreover, EU legislation is often ‘minimum-harmonization’, meaning Member States are often free to enact more strict legislation as an addition to EU Regulations or Directives ● As key financial law is enacted in the form of Directives (e.g. MiFID II), EU financial law is not fully harmonized, especially when it comes to hard to classify instruments such as digital currencies and crypto-assets. ● Notably, the important MiFID definition of ‘transferable securities’ has been implemented in varying ways across EU Member States, leading to a fragmented securities regime for token issuers. 13
  14. 14. On the Member State level, there are large differences in terms of regulatory approaches to digital currencies and crypto-assets Pro-active approach Undefined approach Wait-and-see approach / careful consideration 14
  15. 15. A small number of Member States have taken a proactive approach towards the legislation of digital currencies and crypto-assets List of countries: ❖ Estonia ❖ Malta ❖ Switzerland ❖ Lichtenstein ❖ Lithuania ❖ Gibraltar ❖ Jersey ❖ France ❖ Isle of Man The proactive approach: These countries have expressly legislated or specifically developed methodologies, criteria or guidelines for assessing how and to what extent ICOs could be considered as financial instruments, thus falling under their respective framework of financial services legislation. Current rules on securities business, prospectus, anti-money laundering, financing of terrorism and/or market abuse continue to apply to such offerings, as applicable. 15
  16. 16. Many big EU Member States have taken a wait-and-see approach towards the legislation of digital currencies and crypto-assets List of countries: ❖ Austria ❖ Belgium ❖ Bulgaria ❖ Denmark ❖ Estonia ❖ Finland ❖ Germany ❖ Ireland ❖ Luxembourg ❖ Netherlands ❖ Portugal ❖ Spain ❖ United Kingdom ❖ Guernsey The wait-and-see approach: These countries appear to take a “wait-and-see” or “guarded” approach. They do not specifically restrict or prohibit ICO’s or crypto assets initiatives but would take a measured approach to related proposals on a case by case basis and in full consideration of, and conformity to, legislative instruments already in force within their territory and, where applicable, in the EU (such as those on securities business, prospectus, anti-money laundering, financing of terrorism and/or market abuse). Initiatives would not be allowed to bypass rules simply because of the manner in which such assets are created or offered (mainly DLT technology). 16
  17. 17. Especially eastern European Member States have so-far taken an undefined approach towards regulating digital currencies and crypto-assets List of countries: ❖ Croatia ❖ Czech Republic ❖ Greece ❖ Hungary ❖ Italy ❖ Latvia ❖ Poland ❖ Republic of Cyprus ❖ Romania ❖ Slovakia ❖ Slovenia ❖ Sweden ❖ Norway ❖ Iceland The undefined approach: The websites of the securities authorities in Croatia, Czech Republic, Greece, Hungary, Italy, Latvia, Poland, Republic of Cyprus, Romania, Slovakia, Slovenia, Sweden, Norway and Iceland do not appear to provide clear information as to their stance in these areas. The fact that information was lacking or not easily traceable at the time of this research does not necessarily imply that ICOs and crypto assets initiatives are being completely restricted or ruled out, nor that they are always unconditionally allowed. 17
  18. 18. MEMBER STATE REGULATORY AUTHORITY REGULATION OF ICOs REGULATION OF DIGITAL CURRENCIES CONSUMER-RELATED INITIATIVES Austria Austrian Financial Market Authority (FMA) Not specific. However, FMA states that as the design of ICOs varies in terms of technical, functional and economic terms, an assessment would need to be done in accordance with prevailing supervisory rules on a case-by-case basis. Coins or tokens may constitute financial instruments if their respective underlying rights are comparable to mainstream categories of investments. The FMA claims that as there is no issuer behind “bitcoin”, it is not the subject to supervision. However, the operation of various business models based on bitcoin would require an FMA licence . Information/ Warning: Focus on Initial Coin Offerings (November 2017) and bitcoins and Virtual Currencies (2016) Belgium Financial Services and Markets Authority (FSMA) Not specific. The FSMA identified a number of national laws which, in addition to European laws, apply depending on how ICOs are structured (November 2017). Each case is examined on a case-bycase basis. Warning: ICOs (November 2017)32 and Cryptocurrency trading platforms: Beware of fraud (February 2018)33 Bulgaria Financial Services Commission (FSC) The FSC will monitor the market for cryptocurrencies and ICOs on the Bulgarian market with a view to undertaking specific measures related to money laundering and abuse stemming from their trade (July 2018) See Regulation of ICOs Relay of ESMA’s warning (November 2017) Croatia Croatian Financial Services Supervisory Agency (HANFA) No information appears to be available No information appears to be available Information on virtual currency and risk of investing in virtual currency (February 2018) and Information on investment risks in crypto and ICO (December 2017) An overview of the regulation of digital currencies and crypto-assets within EU Member States 18
  19. 19. MEMBER STATE REGULATORY AUTHORITY REGULATION OF ICOs REGULATION OF DIGITAL CURRENCIES CONSUMER-RELATED INITIATIVES Czech Republic Czech National Bank (CNB) No information appears to be available A January 2017 anti-money laundering law requires virtual currency exchanges to determine the identity of customers. The law appears also to restrict Bitcoin use. Denmark Danish Financial Supervisory Authority (Finanstilsynet ) No specific rules but current laws remain applicable subject to design of ICO. Tokens that resemble financial instruments could potentially fall under one or more EU laws, and therefore within scope of relevant regulations (November 2017) Cryptocurrencies remain unregulated in terms of Danish financial legislation (November 2017) Risks when investing in ICOs (November 2017) and EU authorities warn consumers about cryptocurrency (February 2018) Estonia Estonian Financial Supervision Authority (Finantsinspektsioon) EFSA issued (non-binding) guidance. Tokens might be considered securities, depending on their design and scope of issue. ICO may also be governed by the Credit Institutions Act if they are akin to loans. Mining cryptocurrencies falls outside scope of EFSA but AML and other legislative requirements apply. Regarding trading cryptocurrencies, it is important to mark that according to the judgement of the Estonian Supreme Court (RKHKo 3-3-1-75-15), trading Bitcoins as business activity corresponds to the provision of services of alternative means of payment. Virtual money providers are not subject to supervision (June 2015) Finland Financial Supervisory Authority (Finanssivalvont a) Different current national rules may apply depending on the ICO design (November 2017) No information appears to be available Warning: cryptocurrencies and ICOs (Initial Coin Offering) are high-risk investments (November 2017) An overview of the regulation of digital currencies and crypto-assets within EU Member States 19
  20. 20. MEMBER STATE REGULATORY AUTHORITY REGULATION OF ICOs REGULATION OF DIGITAL CURRENCIES CONSUMER-RELATED INITIATIVES France Autorité des Marchés Financiers (AMF) Following a public consultation on ICOs , the AMF took on board respondents’ suggestions that a specific legal framework for ICOs should be developed. A licence may be issued to companies applying for an ICO as long as consumer protection criteria are adhered to. Licensing would not be mandatory. This voluntary regulatory framework for crypto- firms would be experimental. Currently no specific regulation Warning: Buying bitcoin (December 2017) Germany Federal Financial Supervisory Authority (BaFin) Not specific. The regulator issued an Advisory Letter (March 2018) on the classification of tokens or cryptocurrencies underlying “initial coin offerings” (ICOs) as financial instruments in the field of securities supervision. Potential market participants are to give careful consideration as to whether tokens constitute a regulated instrument in terms of applicable rules59. Caseby-case determination is required to determine a token’s legal classification within German and EU law. Warning for consumers on ICOs (November 2017) Greece Hellenic Capital Markets Commission (HCMC) No information appears to be available No information appears to be available Relay of ESMA’s warning on ICO investing (November 2017) Hungary National Bank of Hungary (MNB) No information appears to be available No information appears to be available Caution on the use of Bitcoin (September 2014)and (December 2016) and relay of ESAs warnings (February 2018) Relay of ESMA’s warning on ICO investing (November 2017) An overview of the regulation of digital currencies and crypto-assets within EU Member States 20
  21. 21. MEMBER STATE REGULATORY AUTHORITY REGULATION OF ICOs REGULATION OF DIGITAL CURRENCIES OTHER INITIATIVES Ireland Central Bank of Ireland (CBI) No official position but in a recent policy speech, CBI has asked about the difference between an unregulated ICO and the issuance of a financial instrument and when that difference may not be there (January 2018) Alert on use of virtual currencies (2013/2014)71 and Initial Coin Offerings (December 20172. Discussion paper on virtual currencies and blockchain technology issued by the Department of Finance (March 2018) Italy Banca d’Italia Commissione Nazionale per le Società e la Borsa (CONSOB) No definite statement appears to have been made so far. Banca d’Italia discourages the purchase, retention and sale of cryptocurrencies by banks and financial intermediaries (January 2015) Warning on use of virtual currencies (January 2015) and ICOs (December 2017), relaying ESMA’s statement Latvia Financial Stability and Capital Market Commission (FKTK) No definite statement has been made so far Virtual currency providers, including conversion of fiat currency to crypto, will be registered and supervised by the State Revenue Service. Investor alert on bitcoin (February 2014) and ICOs (November 2017) Lithuania Bank of Lithuania The national regulatory and legal regime may apply to specific ICO models. Entities are required to observe parameters and restrictions outlined in such position (October 2017) Banks, payment institutions and other financial market participants are specifically prohibited from providing services to virtual currencies or participate in them (November 2017) Warnings may have been issued but links appear to be unavailable. Blockchain sandbox platform service, LBChain (January 2018) An overview of the regulation of digital currencies and crypto-assets within EU Member States 21
  22. 22. MEMBER STATE REGULATORY AUTHORITY REGULATION OF ICOs REGULATION OF DIGITAL CURRENCIES OTHER INITIATIVES Luxembourg Financial Sector Supervisory Commission (CSSF) Despite the lack of specific regulations that applies to ICOs, the activities related thereto or implied through the creation of tokens, the collection and raising of funds may, depending on their characteristics, be subject to certain legal provisions in Luxembourg and thus to certain supervisory requirements (March 2018) No specific regulation. CSSF encourages a European/International approach especially as regards the legal qualification of virtual currency (March 2018) Warning on Initial Coin Offerings (“ICOs”) and tokens (March 2018) Malta Malta Financial Services Authority (MFSA) On July 4, 2018 the Maltese Parliament has officially passed 3 bills into law: • The Virtual Financial Assets Act (VFA Act), • The Malta Digital Innovation Authority Act, • The Innovative Technology Arrangements and Services Act. The VFA Act regulates ICOs. The Malta Digital Innovation Authority Act formalizes regulatory procedures for the cryptocurrency and the blockchain industry. New regulatory authority tasked with promoting and regulating distributed or decentralised technology (among other aspects) (July 2018) Netherlands Dutch Authority for the Financial Markets (AFM) Potential issuers need to properly analyse the extent of any overlap with financial regulation and supervision before launching their ICO. If a token qualifies as a security, a prospectus is compulsory In a recent judgement, a Dutch District Court declared that bitcoins are stand-alone value files, which are delivered directly to the payee by the payer in the event of a payment. In the court's view, this bears characteristics of a property right. AFM warns investors on risks associated with ICOs Poland Polish Financial Supervisory Authority (KNF) Does not seem to be regulated The Polish Financial Ombudsman, Aleksandra Viktorow, appealed to the government to regulate the activities of financial companies, such as online exchange offices or virtual currency exchanges (February 2017) Statement by Narodowy Bank Polski (NBP) and the Polish Financial Supervision Authority (KNF) on "virtual currencies" (July 2017) KNF’s statement on selling so-called coins or tokens (Initial Token Offerings – ITOs or Initial Coin Offerings – ICOs) (November 2017) An overview of the regulation of digital currencies and crypto-assets within EU Member States 22
  23. 23. MEMBER STATE REGULATORY AUTHORITY REGULATION OF ICOs REGULATION OF DIGITAL CURRENCIES OTHER INITIATIVES Portugal Portuguese Securities Market Commission (CMVM) FinTech business models (which include ICOs) are varied and may be subject to legislation and CMVM's supervision Alerts consumers to the risks of using "virtual currencies" (October 2014) CMVM warns investors on Initial Coin Offerings (ICOs) (November 2017) Republic of Cyprus Cyprus Securities and Exchange Commission (CySEC) No information appears to be available No information appears to be available Warning to investors on trading In Virtual Currencies (March 2014 and October 2017); Risks Emanating from Initial Coin Offerings for Investors and Firms (November 2017) Romania Financial Supervision Authority (ASF) No information appears to be available No information appears to be available No warnings have been issued Slovakia National Bank of Slovakia No information appears to be available No information appears to be available Warning to the public on Bitcoin (November 2013) An overview of the regulation of digital currencies and crypto-assets within EU Member States 23
  24. 24. MEMBER STATE REGULATORY AUTHORITY REGULATION OF ICOs REGULATION OF DIGITAL CURRENCIES OTHER INITIATIVES Slovenia Securities Market Agency (ATVP) No specific guidelines/rules. Guidance in report of June 2018. No information appears to be available ATVP held a public consultation on ICO and crypto assets open in January to April 2018 and a report was published in June 2018. Warning regarding buying, storage and investment in virtual currency Spain Banco de Espana National Securities Market Commission (CNMV) Not specific. CNMV considers that a good number of operations structured as ICOs should be treated as issues or public offerings of transferable securities in terms of Spanish law . Current rules apply. This was also confirmed (May 2018) by a high CNMV official who stated that existing securities rules will continue to apply until international/European reference standards are made applicable . No information appears to be available Joint press statement by the CNMV and the Banco de España on “cryptocurrencies” and “initial coin offerings” (ICOs). See also CNMV considerations on crypto currencies and ICOs addressed to market professionals (February 2018) Sweden Financial Supervisory Authority (FI) No specific guidelines/rules. Report: “FI’s role regarding innovation “ (December 2017) No information appears to be available Warning: Risks connected with Initial Coin Offerings (ICO) (November 2017) and cryptocurrencies (February 2018) United Kingdom Financial Conduct Authority (FCA) Not specific. Determined on a case by case basis, depending on ICO design. Regulatory considerations as applicable under Financial Services and Markets Act 2000 (FSMA). A recent FCA Consultation Paper provides some additional (non-binding) guidance for token issuers. (January 2019) Not currently regulated Warning: risks relating to ICOs (September 2017) Warning: risks of investing in cryptocurrency CFDs (November 2017) FS17/4: Distributed Ledger Technology Feedback Statement (December 2017) An overview of the regulation of digital currencies and crypto-assets within EU Member States 24
  25. 25. JURISDICTION REGULATORY AUTHORITY REGULATION OF ICOs REGULATION OF DIGITAL CURRENCIES OTHER INITIATIVES Norway Financial Supervisory Authority of Norway (Finanstilsynet) No specific guidelines/rules. Finanstilsynet's supervisory activities will be based on ESMA's assessments (November 2017) No information appears to be available Warning to consumers on ICOs (November 2017) and cryptocurrency (February 2018) Iceland Financial Supervisory Authority No specific guidelines/rules No information appears to be available Liechtenstein Financial Market Authority Depending on their specification, tokens may constitute financial instruments subject to financial market Law (September 2017). On May 7, 2019 the Liechtenstein government reported that it passed a motion to implement a new law on Tokens and VT Service Providers (generally referred to as the “Blockchain Act”). The Blockchain Act allows every possible asset, including real estate, bonds and securities, to be tokenised, digitalized and listed on a cryptocurrency exchange, and regulates ICOs, STOs and TGEs. As of now, neither the production nor the use of virtual currencies as means of payment are subject to any licensing requirement governed by specialized legislation. In individual cases, however, there may be a licensing requirement depending on the specific design of the business model. An overview of the regulation of digital currencies and crypto-assets within the European Economic Area (EEA) 25
  26. 26. An overview of the regulation of digital currencies and crypto-assets within other European jurisdictions JURISDICTION REGULATORY AUTHORITY REGULATION OF ICOs REGULATION OF DIGITAL CURRENCIES OTHER INITIATIVES Gibraltar Gibraltar Financial Services Commission (GFSC) As of 1 January 2018, any firm carrying out by way of business, in or from Gibraltar, the use of distributed ledger technology (DLT) for storing or transmitting value belonging to others (DLT activities), needs to be authorised by the GFSC as a DLT Provider. Nine principles are applied to DLT Providers so as ensure that the GFSC’s regulatory outcomes are achieved. No information appears to be available Innovate and create Team created. Statement on Initial Coin Offerings (September 2017) Switzerland Swiss Financial Market Supervisory Authority (FINMA) Publication of ICO Guidelines which define the information FINMA requires to deal with ICO enquiries and the principles upon which it will base its responses (February 2018) FINMA closes down coin providers and issues warning about fake cryptocurrencies (September 2017) Jersey Jersey Financial Services Commission (JFSC) Publication of ICO Guidelines (July 2018). The JSFC does not regulate ICOs and will impose minimum standards. ICO issuers will be required to be administered by a trust and company service provider licensed by the JFSC No conduct rules for virtual currencies but still subject to AML and counterterrorism financing legislation in Jersey (September 2016). Warning on ICOs (November 2017) Guernsey Financial Conduct Authority (FCA) Cautious approach if approached with applications involving ICOs that could be traded on secondary market (February 2018) Cautious approach if approached in regard to setting up of a digital currency exchange (February 2018) Advisory notice concerning ICOs (September 2017) Isle of Man Isle of Man Financial Services Authority (FSA) The tokens issued through an ICO do not fall within the definition of “investments”, and therefore the tokens are not regulated investments and the protections afforded to investors of traditional investment products regulated under the Financial Services Act 2008 do not apply In April 2015 the Proceeds of Crime (Business in the Regulated Sector) Order 2015 amended the law to bring certain businesses involved in virtual currencies under the oversight of, but not regulation by, the FSA Q&As on ICOs 26
  27. 27. Estonia France Gibraltar Liechtenstein Malta Switzerland The most crypto-friendly states provide regulatory certainty. Population: 1,316,000 # of ICOs: 65 Funds raised: $570,576,457.- Other remarks: ❖ Low-wage but digitally advanced nation ❖ High amount of tech talent ❖ banks provide bank accounts to ICO issuers (unlike many other in the EU) ❖ Relatively high legal certainty due to EFSA guidance Especially smaller states practice jurisdictional competition to attract the crypto industry. Population: 66,999,000 # of ICOs: 14 Funds raised: $143,240,286.- Other remarks: ❖ Largest EU state to participate in jurisdictional competition for ICOs ❖ However, legislation not enacted yet ❖ Considering France’s # of ICOs and the state of the market, France might have missed the boat Population 37,810 # of ICOs 3 Funds raised $27,700,000.- Other remarks ● High legal certainty due to new Blockchain Act (Adopted May 2019) ● New legislation focusses on use of DLT for tokenized assets ● First STO prospectus’ approved by FMA Population 460,297 # of ICOs 13 Funds raised $132,013,038.- Other remarks ❖ Very high legal certainty: ➢ ICO regulation ➢ special regulatory body ➢ DLT regulation ❖ Attractive corporate income tax regime ❖ Legal certainty and tax regime led to Binance and Okex to move to Malta Population 8,420,000 # of ICOs 78 Funds raised $1,572,271,605.- Other remarks ❖ Crypto Valley: Zug is a hub for the crypto industry, talent and access to financial services ❖ High legal certainty, due to very pro active regulator (guidance & ability to obtain no- objection letters) Population: 34,571 # of ICOs: 22 Funds raised: $370,008,571.- Other remarks: ❖ provides regulatory certainty through a licensing regime and regulatory framework for DLT providers ❖ Pro-active regulator and a new trade association for the industry ❖ Attracting exchanges to incorporate in Gibraltar 27
  28. 28. FURTHER RESEARCH 28 Issues still to tackle: ● Further regulatory certainty has to be provided by the EU or individual Member States in order to incentivize innovation in the use of DLT for a variety of use-cases ● The applicability of securities laws to crypto-assets should be further harmonized across the EU in order to provide token issuers with a single EU-wide securities regime ● A single EU-wide regime should be established to regulate the use of DLT as technical infrastructure for tokenized assets, in order to establish the EU as a fertile ground for innovation in this area Further research to be done: ● Comparative research into the applicability of KYC/AML requirements on businesses working with digital currencies and crypto-assets and the KYC/AML compliance industry ● Comparative research into the applicability of legal regimes to payment networks and stable coin issuers (incl. Libra) ● Research on worldwide jurisdictional competition between ‘crypto-friendly’ states ● In-depth comparative research on the worldwide applicability of securities laws to token offerings (i.e. ‘When is a token a security?’)
  29. 29. METHODOLOGY 29 Sources have been provided in-line as hyperlinks. EU-level regulation and policy: ● Information on EU regulations and their applicability to crypto derive from primary and secondary legal sources, as well as in-house analysis Member State level regulation: ● Information on Member State Regulation has been derived from analysis performed by the European Securities Market Authority and its Securities and Market Stakeholder Group, as well as the websites from all financial regulatory authorities of individual Member States. At minimum, this information is up-to-date until 19-10-2018 Data on crypto-friendly Member States: ● Information on crypto-friendly Member States has been derived from the sources listed under Member State Regulation above, as well as secondary sources ● Data on the number of ICOs and the amount of funding per Member State originate from a proprietary data set on ICO issuers
  30. 30. About Law & Blockchain Consultancy Through Law & Blockchain Consultancy, I do legal research on the challenges faced by companies working with blockchain technologies. I further advise companies in the blockchain sector on a broad range of subjects from contract law to securities issuances. Currently engaged with the publication of a book on the regulation of ICOs, the creation of a program on the regulation of innovative technologies for Open University of the Netherlands and acting as legal advisor to a decentralized cryptocurrency exchange. I have created and distributed this report for informative purposes, in order to help the space mature. For business inquiries, I am reachable on - Thijs Maas