On average, four ICO projects are launched every day in the world, but in 2018 the vast majority of them crashed as quickly as they were launched. It would seem that it’s time to close the “ICO shop”: investors demand respect for their rights, regulators start asking difficult questions. But there is an opposite opinion that the ICO market has not disappeared, but only transformed and moved into a less public place.
Over the past couple of years, it became clear that projects mainly produce analogs of securities, and this, in turn, attracts venture capital investors. On the other hand, many regulators decided on the requirements for both the ICO projects and their investors.
And while Asia and America are competing in the progressive regulation of the cryptocurrency market, conservative Europe is confidently accepting projects that want to raise funds with the help of cryptocurrencies.
Despite the fact that in Europe there is not yet a single body that centrally regulates the emission of tokens, this does not prevent states from independently developing their own approaches to this issue.
Recently, the chairman of the European Organization of Securities and Markets (ESMA), Stephen Major, noted the similarity of the issue of tokens with financial instruments, which makes it possible to apply certain regulatory requirements to them. But what to do with ICOs that do not fit into this framework? The ESMA announced its intention to allocate more than 1 million euros for the monitoring of cryptocurrencies and other fintech activities in 2019. It is planned that by the end of 2018, ESMA will report on its position on the regulation of this sphere.
When there is a question about the choice of countries for the ICO, the majority recalls such jurisdictions as Gibraltar, Estonia, Switzerland. Yes, they all worked hard on their public relations, as countries loyal to the cryptocurrency business. In parallel with this, there is a number of European regulators who do more than they say. Consider the top ten European jurisdictions where ICO-projects feel most comfortable, on the example of successful cases of 2018.
Malta became the first country in the world to provide a clear regulatory framework for
Malta is popular among blockchain companies due to its loyal tax system. In March, dozens of blockchain companies moved to its jurisdiction, for example, OKex, ZB.com and Bitbay. And in September, the leading in terms of trading volume, the Binance cryptocurrency exchange and the Malta Stock Exchange signed a memorandum of understanding, which will create a platform for trading tokens with securities properties.
In 2018, the Maltese ICO projects collected about $ 134 million (hereinafter, the figures on fees are taken from the September report from Fabric Venture – ForkLog comment). Among them are The Abyss (DAICO), Play2Live, Intimate, HOLD and others.
Legal Regulation of Cryptocurrency
Bitcoin and other cryptocurrencies are treated in Switzerland as assets in accordance with the report of the Federal Council of Switzerland (paragraph 2.2.1), and therefore they are neither securities nor financial contracts, i.e. derivatives (futures, options, etc.) nor property rights. Cryptocurrency activities are also regulated by the provisions of the Swiss Criminal Code (“SCC”), for example, for money laundering using cryptocurrency, the person is liable in accordance with SCC Article 305bis.
At the moment, the Swiss Federal Council is taking steps to develop the legal status of the cryptocurrencies and rules for the regulation of this industry in the country.
The Swiss cantons also actively integrate cryptocurrencies into people’s daily lives.For example, it is possible to pay utility and other services with the help of Bitcoin.
Legal regulation of tokens and ICO
Cryptographic tokens can be:
- Securities in the presence of relevant features, such as the provision of a share in the company’s profits, the right to profit in general, the right to vote, etc.
- Assets, if the tokens do not fall under the definition of securities.
Switzerland does not establish special rules for holding a token, although it requires adherence to the provisions of the legislation in the field of combating money laundering and the financing of terrorism (KYC / AML Policy).
On February 16, 2018, the Swiss Financial Market Supervisory Authority (FINMA) issued recommendations on the ICOs. The regulator broke all the tomsails into three main categories:
Payment ICO (referring to ICO, within the framework of which tokens are implemented, which will act as a means of payment on a certain platform).
Utility ICO (utility tokens).
Asset ICO (asset tokens).
Tokens sold under the Payment ICO can be transferred and act as a payment facility. Their sale should be conducted under the Swiss Anti-Money Laundering Act (AMLA), but they are not considered securities. Under them, as a rule, are the usual cryptocurrencies.
Tokens sold within the Utility ICO do not qualify as securities unless their sole purpose is to provide digital access rights to an application or service.
Tokens sold under Asset ICO are treated as shares or bonds if, for example, tokens are paid as dividends, percentages or tokens give rights to receive part of the profit. Such ICOs are conducted within the strict requirements of the legislation in the sphere of securities and the stock market.