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The Regulation of ICOs

The French Autorité des Marchés Financiers (AMF) has recently published a discussion paper on Initial Coin Offerings (ICOs), expressing its wish to properly regulate the sector in the absence of any specific regulations. This comes three weeks after Robert Ophele, the President of the AMF, publicly stated that ICOs do not fall under any existing legislation and urged French and EU authorities to take a step forward and determine an official legal classification for ICOs. Progress is needed as soon as possible since the cryptocurrency industry is evolving at a rapid pace.

The innovation of Initial Coin Offerings has taken the world by storm, raising somewhere around $1.3 billion since the beginning of the year. ICOs rely on a Blockchain and cryptocurrency system aimed at funding technology-based projects, which is generally launched by a group of developers. Investors then receive a token issued by the project initiator which confers rights based on their purchase.

In a bid to moving towards regulation, one of the most prominent questions posed is whether an issued token can be classified as a security. To date, this has not been legally specified by any European country or under EU law. While the European Securities and Markets Authority (ESMA) has not issued any public statement on ICOs, it is believed that the European Central Bank (ECB) is looking to regulate ICOs.

The AMF is considering updating the existing legislation or creating a set of rules applicable to potential ICO organisers. More importantly, the AMF also launched a new program, referred to as UNICORN (Universal Node to Research and Network), which is intended to act as a guidance-plan to those wishing to set up an ICO.

Much like its other European counterparts, the MFSA has not yet pronounced itself on ICOs and the regulation of cryptocurrencies. It has however issued a consultation document on the regulation of Professional Investor Funds (PIFs) investing in cryptocurrencies. The Maltese Government seems intent on ensuring Malta becomes a pioneer in this area by promoting the role of cryptocurrencies and blockchain in Malta. GTG Advocates’ Dr Ian Gauci was in fact recently appointed as legal expert to the local taskforce appointed to work on a regulatory and legal framework for a national blockchain strategy.

For more information on Cryptocurrencies, Bitcoin, ICOs, Blockchain and related areas please contact Dr Ian Gauci on igauci@gtgadvocates.com

Disclaimer: This article is not intended to impart advice and readers are asked to seek verification of statements made before acting on them.