Blockchain technology is currently making waves, reflecting the enthusiasm shown for other innovations in their era, such as the microprocessor in the 1970s and the internet in the 1990s.
Naturally, the most economic and government players are now considering the benefits of this technology, whilst remaining cautious of the risks that it brings.
Initial Coin Offerings or ICOs are very much at the forefront of these considerations.
ICOs are a simple and quick way for businesspeople to raise funds, often through a cryptocurrency, by offering “digital tokens” to investors in return for a wide range of rights.
One of the specific features of ICOs is therefore the fact that the rights attached to these tokens can be different, falling into different legal categories and therefore assessed differently by law, regulators and authorities, particularly tax authorities.
At this stage - and whilst regulation is still left behind by innovation - it is interesting to review the first initiatives taken by some European countries to try and understand ICOs.
Some have shown little reaction like Italy, Belgium and Croatia, where regulators have simply warned about the risks linked to ICOs, whilst others like Bulgaria have remained completely silent.
In Austria, the FMA publicly released a “FinTech Navigator” which summarises various regulations likely to be applicable in the context of an ICO.
The United Kingdom has initially chosen to handle ICOs on a case-by-case basis, both for taxation and regulatory matters.
Switzerland has taken a more proactive approach to ICOs. FINMA was the first European regulator to suggest a specific classification for digital tokens into three categories: (i) payment tokens, (ii) investment tokens and (iii) user tokens. Although this classification lacks flexibility in that it does not take so-called “hybrid” tokens into account, it does help us to more easily understand the rights attached to digital assets.
Like the German BAFIN which seems to have adopted the same naming system, FINMA believes that only the investment tokens should be considered transferable securities.
In France at the end of 2017, the AMF launched a consultation, a summary of which was published on 22 February 2018. It considers the economic potential of this innovative method of funding and calls for tailor-made regulation which is appealing and protects investors.
Finally, the Dutch ministry of finance indicated that it wants to legislate to create rules applicable to ICOs comparable to those applicable to IPOs, whilst leaving room for technical freedom to encourage their development.
In light of this brief overview, it would appear that most European countries have taken stock of the economic issue of ICOs. It is now up to each country to work quickly on legislation that reassures both issuers and investors, whilst discouraging fraudsters who are increasingly looking to take advantage of this “uncontrolled” style of fundraising.
In this context, it would be positive for Monaco to be at the forefront and take up the challenge of bold regulation and effective communication. The proposed law 237 regarding blockchain is a challenge that must be carefully followed through.
