On June 13, the Occurrency team attended a public presentation on Token Regulation in the EU held by Blockchain Bundesverband & FOM Hochschule für Oekonomie & Management Berlin.
The ICO hype has prompted many international regulators to issue warnings pertaining to the risks associated with investing in initial coin offerings. While the SEC (US Exchange Comission) has launched a fake ICO to educate the people, the European Union is more focused on embracing the decentralized technology by issuing crypto anti-money laundering regulation and rules that act in the best interest of honest startups looking to raise funds through an ICO.
The goal of the presentation we had the pleasure to attend was to educate the audience on token sale regulations under the EU law, as well as analyze the status quo of current regulations across Europe.
Vision of the Bundesblock
with Florian Glatz, Chairman of the Board Blockchain Bundesverband
On the premise that Blockchain technology needs advocates, the Bundesblock was founded about a year ago as an association that promotes a technology “in the very same way a chemical association would promote a certain chemical”, said Florian Glatz. Bundesblock is an association that promotes a specific type of code. To some degree, it is a political entity because it is the first to promote a type of codal protocol.
Chairman Glatz emphasizes:
“I believe in an economy where digital monopolies occur naturally. If one network is the strongest, it becomes a monopoly; not because it has a structural organization like the old monopolies, but because the quality of being a monopoly is an inherent part of the product. Facebook is a very good product, because everybody is on Facebook”.
Although we have the mechanisms required for a market economy to enable many people to participate and rise from being relatively poor with a good idea to being a good entrepreneur, those principles might be outdated in an age of digital monopolies. One solution, among many, might be a Blockchain-based economy, or at the very least, Blockchain-based business models where you wouldn’t require a shareholder structure.
There are many players on the production and on the consumption side of each market. The society as a whole can become wealthier and more successful. As digital monopolies stand against the idea, the Blockchain world can stand for the idea. Poor regulators have their own paradigms and they have to abide by the rules because it is their job, their duty, their whole life.
“Simply put, it is impossible to ask regulators to change rules they truly believe in. We have to shift paradigms, not only in technology, but also in society and politics to make sure that this new possibility of economic activity becomes possible”, added Glatz. He continued emphasizing that “I wouldn’t say that we have to replace all monopolies with Blockchain-based business models, but I advocate for the political and regulative existence of Blockchain-based businesses in order to have competition against network monopolies that involve conventional shareholders.”
Diversity is needed in order to discipline capitalist monopolies that act in the interest of their shareholders. The Blockchain-based industry is a key element in that diversity. Tokens lie at the core of the industry, so
that begs the question “How do we regulate tokens in the EU?”
Current view of EU laws regarding token regulation
with Dr. Nina-Luisa Siedler, Speaker Finance Working Group Blockchain Bundesverband
Following Florian Glatz’s open talk on the vision of the Bundesblock, the presentation continued with an in-depth speech on token regulation in the EU, moderated by Dr. Nina Sielder.
“In the regulatory space, especially in finance, we distinguish three areas of regulation: ICO, secondary market trading, and obligations for people who want to do business with tokens on a commercial basis.”
What most people want to know these days is how to get a license to launch an ICO. Regulations differ from country to country, from jurisdiction to jurisdiction. Getting approval is easier in some countries such as Germany, Malta, Gibraltar, and Switzerland where utility tokens are “units of account” and not “securities”, like in the US; where getting approval for an initial coin offering is nearly impossible.
Make sure to read one of our previous articles on how small jurisdictions could drive mass adoption of Blockchain technology where we talked about how extraordinary is the progress, mass adoption and overall state of Blockchain in smaller countries.
Nina covered a core aspect surrounding tokens and ICOs in Europe – what is a financial instrument and what is a security? Which tokens out there fall under which of the two terms?
Under the EU law, security tokens can only be something that is transferable. They must be negotiable and have to be listed on a capital market. A token must contain a standardised instrument as they are all alike. It must not be an instrument of payment, and that is the main difference between cryptos and security tokens. Cryptos are an instrument of payment, outside the security’s definition and the regulation applying to issuing and trading securities.
In Europe, it’s not clear whether cryptocurrency tokens are part of the wider financial instruments. In Germany, for example, BaFin already stated that cryptos are “units of account” – which are part of the German financial instrument by definition, but they are outside the European financial instrument. In jurisdictions outside of Germany, certain governments don’t see crypto tokens as financial instruments. This means one needs to apply for a licence only applicable in Germany, a real challenge with terms like financial instruments and securities.
In February, Blockchain Bundesverband published a detailed paper token regulation under the EU law with an emphasis on token sales. The purpose was to analyze the present status quo of token sale regulations in Germany and the EU.
In a recent interview, prime minister of Liechtenstein, Adrian Hasler, talked about the impact Blockchain technology will have on different industries. He emphasized that a new Blockchain law is in the making in Liechtenstein. Its goal will be to set up a transparent regulatory base for all Blockchain-based businesses headquartered in the country. Initially announced on March 21, “The Blockchain Act” will be all about integrating present business models into proper regulatory terms in order to make sure companies have a perfectly legal base when developing their ICOs. The act is anticipated to be launched this summer.
Throughout 2017, there was little to no regulation for ICOs. Things have changed and increasingly more governments became aware of the damage a scam can do. As opposed to IPOs, everyone can buy tokens and become an ICO investor. Earlier in June, Lithuania decided it’s time to provide better clarity on launching initial coin offerings, selling or trading virtual tokens. Lithuania’s finance ministry, Vilius Sapoka, highlights:
“We should make our efforts for Lithuania to become the main headquarters for those ICO project promoters which are willing to operate in a transparent and orderly legal environment.”
By releasing new token regulations, Lithuania joins Germany, Liechtenstein, and Switzerland on a journey to bring transparency into the crypto space, so that ICOs can grow in an authorized, regulated environment.