How will the EU regulate ICO and tokens?

nnnIn the ICO and digital money continue to develop at the same time, people are also very concerned about their progress in legal supervision. At present, some states in the United States in this effort has been the result, but few people on the EU how to deal with tokens and ICO to explore. This article discusses the theme of this discussion, the analysis of the EU regulatory ICO and tokens the complexity and difficulty, but also that will achieve initial progress.n
nnTranslated by: Inan
nICO world has done a lot of things.n
nThis kind of block chain uses millions of dollars in sales to attract interest from funds, investors, lawyers and regulators. But so far, regulators have remained largely silent on the issue.n
nBut that does not mean they have no action.n
nThere has been a lot of views on how the law of the United States has applied to tokens as the main topic of discussion.n
nPerhaps this is what makes ICO sponsors looking for jurisdictions that can provide legal clarity in this area. Some countries are aware of this and have responded to this competition.n
nSurprisingly, however, these discussions rarely involve how EU law deals with tokens and ICOs. So let’s take a look at the question and think about how the supervisors will appear.n
nLegal Issues n
nFrom the most basic level, the United States and the EU tokens and ICO legal issues are the same.n
nSimilar to the United States, the key question is whether the token is a security. If the answer is yes, then there will be snowball effect, because it will trigger financial supervision.n
nOther important issues include anti-money laundering (AML) law, payment of service regulations, and, of course, taxes. However, these issues are more complex under EU law than in US regulations.n
nThe main reasons are the following two aspects.n
nFirst, the EU regulatory framework is changing. Many laws are new and are evolving or reconstructed. For example, MiFID II (Fundamental Act of Investment Services), prospectus rules (PR3) and new anti-money laundering directives. The new capital markets union in the European Union is witnessing a lot of things happening.n
nSecond, the situation in the EU is quite complex. The laws of the European Union and the laws of their member States are different, and many EU laws have not yet been implemented in national law.n
nThis can sometimes lead to inconsistent regulatory relations among member states, even if theoretically, the law should be the same. There are many other issues to be decided by the member states, which may lead to differences in their regulatory approach.n
nThe right wayn
nAs mentioned above, the fundamental question that each ICO sponsor would raise is: “Is my token on the securities?” Unfortunately, according to EU law, the answer is not so clear.n
nThe EU’s Investment Services Fundamental Act MiFID provides the term “negotiable securities”, which is a broader category of financial instruments.n
nTransferable securities are securities that can be transferred in the capital market (except for payment instruments), such as:n
nnShares of the Company, other securities equivalent to the shares of the Company, the Partnership and other Entities, and the depositary of the Sharesn
nBonds or other forms of securitization debt, including deposit certificates of such securitiesn
nSo that people can purchase or sell any such negotiable securities or securities that can be used to settle negotiable securities, currencies, interest rates, earnings, commodities, indices and measures in cash.n
nnThis is a key definition because it applies to other laws, such as those relating to the prospectus requirements.n
nThis definition is very broad because it basically defines transferable securities as “securities that can be transferred in the capital market”. Theoretically, all the types of securities mentioned in this definition do not apply to most tokens.n
nHowever, the above list of three points is only a more prominent example, not exhaustive.n
nA reasonable approach is that as long as the given token is different from any of the securities listed above (such as stocks, bonds, etc.), then it is not securities, even if the above list is not exhaustive.n
nThis means that many tokens should not be regarded as securities, and they tend to have these characteristics, such as by asset support or rights related to the token (such as the capital of the tokens).n
nUnfortunately, the EU does not have any court decisions or official guidance similar to the “Howey test” in the United States.n
nIn fact, this means that all the doubts are mainly addressed at the level of the member states. Although this is usually not a problem on well-known standard securities, but the tokens and ICO are not the same.n
nIt is noteworthy that many EU countries have their own developed securities law theory, these theories and other member states are not necessarily the same. As long as the EU’s clear framework is missing, these local practices will play a leading role.n
nThis means that even if the ICO is not only an EU-wide activity, it is global, but the legal analysis of specific tokens will still be based on the laws of a single member State. Although the EU law provides a general definition of “negotiable securities”, there is a lack of more specific interpretive guidance on tokens, which must be mitigated by the Member States’ own laws and their local interpretations.n
nIn the future, this may even lead to the emergence of different approaches (and competition in the EU).n
nThere had been an example of whether VAT (VAT) was levied on digital currency exchange and finally made by the European Court of Justice.n
nOne of the main objectives of the EU is to take care of a single market and to avoid differences among member states. Therefore, taking into account the type of token, distribution, etc., there is room for action.n
nRegulatory guidancen
nThe European Securities and Markets Authority (ESMA) has yet to make any public statements regarding ICO.n
nInterestingly, ESMA issued a report on distributed book technology (DLT) in February 2017. At that time, people have launched a laws on the use of securities laws and regulations.n
nUltimately, ESMA has taken a concrete approach to this problem, which can be explained in the following sentence:n
nn”According to the current market initiatives in the securities market, the rest of this report focuses on the licensed DLT.”n
nnTherefore, it seems that ESMA has deliberately avoided referring to public chains, tokens and ICOs in the report. Therefore, the EU is currently no regulatory guidance in this regard.n
nThe Financial Action Authority (FCA) adopted another approach, and its April 2017 document examined the ICO.n
nOf course, ESMA may also have a careful study of ICO in the future. Its positive results will mean the elimination of some doubts. On the other hand, people do not know what will happen and what constraints it will have.n
nThe next stepn
nIn general, it is unclear whether the EU’s securities laws will be used for tokens and ICOs and how to apply them. In fact, the laws of its member states will play a greater role, but this is not necessarily the best solution for the EU.n
nThis uncertainty has led to market-led efforts to provide clarity for the application of EU law (including securities laws) in tokens and ICOs. A prominent example is the European Regulatory Initiative, led by the block chain investment platform, Neufund, which issued a report titled “Token As Novel Asset Class” Has been supported by many industry participants.n
nThe EU is like a slow-moving giant compared to a smaller, less flexible and less complex jurisdiction. Sometimes the EU needs to spend many years to take action, especially in the area of ​​financial regulation.n
nICO and tokens require a right and fair decision as soon as possible. The market does not require a comprehensive legal solution, as long as there is an explanation that defines the basic problem.n
nI believe the EU can do that.n

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