Interpretations of existing regulation concerning ICO


ECN strongly believes that ICO/ITO are a significant opportunity to expand capital formation for small and medium-sized businesses. However, we also are concerned about the risks associated with both funders and fundraisers due to unclear legal frameworks and insufficient knowledge about the sector. ESMA issued a clear risk warning in late 2017 “ESMA highlights ICO risks for investors and firms” observing a rapid growth in ICOs globally and in Europe and expressing concern that “investors may be unaware of the high risks that they are taking when investing in ICOs.” ESMA also stated concern “that firms involved in ICOs may conduct their activities without complying with relevant applicable EU legislation”.

Member state regulators are increasingly looking at finding relevant approaches, exploring opportunities within existing regulatory frameworks as well as creating a bespoke exemption. Within the discussion there remain varying opinions, those that seek to establish ICO in own right, such as France through its UNICORN research programme on digital assets offerings that published replies to a public consultation in early 2018, and those that try to link ICO to existing financial services. In this respect, the European Commission’s proposal for a European Crowdfunding Service Provider License (ECSP), on which ECN has published a detailed opinion, has also been touted as a potential solution for ICO by some. The latter seems appropriate on some levels, reflecting on the clear symmetries of investor engagement, but may restrict innovation potential attributed to cryptocurrencies.

As the political discourse develops on EU member state level, the current European Commission is refraining from interventions, similarly as with crowdfunding a few years back, to allow markets to develop and national conduct authorities to reflect national concerns. In this respect, the first overview of regulatory approaches to ICO in Europe is welcome. Tanja Aschenbeck-Florange, Partner at Osborne Clarke (Germany), who for the past five years has been a key driver for the ECN Tax & Legal Working Group‘s groundbreaking regulatory reviews of the European crowdfunding market, has applied her experience and created with colleagues from Osborne Clarke an overview of existing regulation concerning ICOs in seven European countries, namely Belgium, France, Germany, Italy, the Netherlands, Spain and the United Kingdom, as well as Hong Kong and Singapore.

Aschenbeck-Florange argues in the paper “Interpretations of existing regulation concerning ICOs in selected European and Asian Countries” that “the alleged advantage of an ICO for digital start-ups/founders is that many members of the crypto industry believe that ICOs and tokens are not subject to regulatory and capital market regulations and are therefore not regulated.” This belief often results in the assumption that fundraisers could save substantial costs for capital market law support, in particular, the preparation of a prospectus and avoid any subsequent obligations. However, Aschenbeck-Florange stresses, “this assessment may often not be correct from a regulatory point of view. In individual cases, this would result in far-reaching (liability) risks”.

As the ICO sector is growing, it may not be maturing yet. To foster the professional development within ICO, ECN is supporting the ICO Charter to create best practices in this exciting new innovation enabling projects to federate resources in a partly regulator-free environment. This should be embedded within the existing legal frameworks, so entrepreneurs won’t be intimated or stifled in developing innovation in Europe. We believe that established crowdfunding players, as well as new ecosystem actors assisting projects and companies in the issuance of new tokens, should take the lead in educating the ICO/ITO market.

ECN is a member of the advisory of SolarCoin Foundation, a cryptocurrency based rewards programme for solar electricity generation. SolarCoin has not issued an ICO and is not seeking to issue and ICO.



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