Cryptocurrency Regulation in the European Union

In this article, Founder of Blockchain Law Lab and Founding Partner of Gurcan Partners,  Att. Bedrettin Gürcan will mention Cryptocurrency Regulation in the European Union.

This article, Cryptocurrency Regulation in the European Union is just a short part of the Academic Research of the Att. Bedrettin Gürcan on the topic of The Legal Framework of the Cryptocurrencies and ICOs. It is one of the most detailed law guides on the topic. To download all study including a wide aspect of regulations from all over the world, please click here.

Cryptocurrency Regulation in the European Union

Each member of the European Union may have a different approach to cryptocurrencies to regulate.

On 13 November 2017, European Securities and Market Authority (ESMA) publish a statement about initial coin offerings. (ICOs).  (ESMA: “ESMA alerts firms involved in Initial Coin Offerings (ICOs) to the need to meet relevant regulatory requirements”, 2017)  

In this statement, according to the structure of ICOs, several regulations are likely applied to these ICOs besides national laws. There is four European Union Directive may be used for initial coin offerings. These are:

1. The Prospectus Directive,
2. The Markets in Financial Instruments Directive,
3. The Alternative Investment Fund Managers Directive
4. Anti-Money Laundering Directive.

If the token offered by the ICO is treated as security because of its features, initial coin offering process will be as offering transferable securities to the public. In this case, ICO owners should obey with Prospectus Directive of EU, which regulates raising capitals in EU. This directive requires publication of a prospectus, which contains the necessary information to understood by the investors about the facts of the project.

In case of offering transferable securities by ICOs, publication of this prospectus will be obligatory and it shall be subject to approval by a Competent Authority.

If ICOs offer just:

1. –    To qualified investors and/or,
2. –    To less than 150 natural or legal persons and/or,
3. –    Of at least EUR 100,000 per investor and/or,
4. –    With a minimum denomination of EUR 100,000 and/or,
5. –    An offer of securities in the EU less than EUR 100.000, within 12 months

They could be exempted from publishing prospectus.

In case of the coin or token offered by the ICO qualifies as a financial instrument such as dealing in financial instruments, placing or advising on a financial instrument, the ICO involves The Markets in Financial Instruments Directive (MiFID) services /activities. Purpose of the MiFID is creating a single market for investment services/activities and to make certain a high degree of harmonized protection for investors in financial instruments.

Depending on services offered by the ICO project, the conduct of business rules and the transparency requirements of the MiFID may be applied.

If ICO scheme is designed to raise capital from a number of investors with a view to investing it in accordance with a defined investment policy of The Alternative Investment Fund Managers Directive (AIFMD), ICO could qualify as an alternative investment fund.

In this case, ICO project should comply with AIFMD obligations, which are about capital, operational and organizational rules and transparency requirements of the project.

Lastly, the statement of ESMA mentions Fourth Anti-Money Laundering Directive, which prohibits money laundering and terrorist financing and aims to track illegal and suspicious transactions. MiFID investment firms, financial institutions, collective investment undertakings marketing their shares or units must be obeyed with Fourth Anti-Money Laundering Directive rules.

In summary, the Directive requires that these firms should carry out due diligence on customers/investors and record-keeping these records. Any suspicious activity must be reported to relevant public authorities.

ICOs may obey with Fourth Anti-Money Laundering Directive according to their structure. From my point of view, ICOs must comply with this directive.

In France, currently, legal definitions of tokens are determined according to their qualification under national legislation. On 22 February 2018, The French Financial Market Authority (AMF) recently issued a public consultation paper about ICO regulations and definitions will be drafted later, and still in progress.  (The AMF publishes the summary of responses to the public consultation on initial coin offerings (ICO), 2018)

This article, Cryptocurrency Regulation in the European Union is just a short part of the Academic Research of the Att. Bedrettin Gürcan on the topic of The Legal Framework of the Cryptocurrencies and ICOs. It is one of the most detailed law guides on the topic. To download all study including a wide aspect of regulations from all over the world, please click here.

Gurcan Partners and Blockchain Law Lab provide comprehensive legal and consultation services for cryptocurrency and blockchain companies. Please do not hesitate to contact us.

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To read our other articles:

1. Company Formation in Germany
2. Company Taxation in Germany
3. ICO Regulations in Germany

Att. Bedrettin Gürcan 

Founder I Blockchain Law Lab

@: info@gurcanpartners.com

Cryptocurrency Regulation in the European Union

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