The Regulation of Tokens in Europe Parts A & B: The EU legal and regulatory framework June 2019 Version 1.0 This document is licensed under a Creative Commons Licence (CC-BY-SA). The terms of the licence can be found at creativecommons.org This paper may be cited as follows: “thinkBLOCKtank, Position paper on the regulation of tokens in Europe (version 1.0)” www.thinkblocktank.org Please note that this contribution is a document that will be updated and supplemented over time. The most recent version of this document will be found at www.thinkblocktank.org. This document does not constitute legal advice. Additionally, this document is the result of a series of thinkBLOCKtank meetings, discussions and debates. The views set out constitute the personal views of the contributors at the time of drafting, and are not necessarily the views of their firms or employers. These discussions and debates continue, and these views may evolve or change over time. This paper is a joint effort by legal and other professionals from across Europe, inspired by the initial “Statement on token regulation with a focus on token sales” by the Finance Working Group of the Blockchain Bundesverband issued in February 2018 and the related extended German version. In order to highlight the differences between EU jurisdictions, the paper has been restructured into (i) an EU section and (ii) various Annexes outlining the applicable legal and regulatory framework in thirteen European countries. The primary contributors to this version included: Denmark ñ Niels Gade-Jacobsen (Njord Law Firm) England & Wales ñ Matthew Suter (DWF LLP) ñ James Burnie (Eversheds Sutherland LLP) ñ Andrew Henderson (Eversheds Sutherland LLP) Europe – other ñ Stefan Loesch (LexByte) France ñ Fabrice Piollet (McDermott Will & Emery LLP) ñ Romain Desmonts (McDermott Will & Emery LLP) ñ Emmanuelle Turek (McDermott Will & Emery LLP) ñ Guillaume Béal (McDermott Will & Emery LLP) Germany ñ Prof. Dr. Heribert Anzinger (Universität Ulm) ñ Natalie Eichler (DWF Germany Rechtsanwaltsgesellschaft mbH) ñ Stephanie Fischer ñ Dr. Christoph Gringel (Heuking Kühn Lüer Wojtek) ñ Dr. Sven Hildebrandt (DLC Distributed Ledger Consulting GmbH) ñ Dr. Sebastian Keding (McDermott Will & Emery Rechtsanwälte Steuerberater LLP) ñ Lennart Lorenz (Schnittker Möllmann Partners Rechtsanwälte Steuerberater PartG mbB) ñ Dr. Ian Maywald (Ashurst LLP) ñ Daniel Resas (Schnittker Möllmann Partners Rechtsanwälte Steuerberater PartG mbB) ñ Prof. Dr. Philipp Sandner (Frankfurt School Blockchain Center) ñ Tobias Seidl (Co-Founder Stokr) ñ Alireza Siadat (Simmons & Simmons LLP) 2 © 2019 www.thinkblocktank.org ñ Dr. Nina-Luisa Siedler (DWF Germany Rechtsanwaltsgesellschaft mbH) ñ Mag. Elfi Sixt (FinTech Academy) ñ Dr. Thorsten Voß (Fieldfisher LLP) Gibraltar ñ Joey Garcia (Isolas LLP) ñ Jonathan Garcia (Isolas LLP) Ireland ñ Gina Conheady (A&L Goodbody) ñ David Gilmartin (A&L Goodbody) Italy ñ Andrea Bianconi Liechtenstein ñ Josef Bergt (NÄGELE Attorneys) ñ Alexis Esneault (NÄGELE Attorneys) ñ Thomas Feldkircher (NÄGELE Attorneys) ñ Thomas Nägele (NÄGELE Attorneys) Luxembourg ñ Monique Bachner (Bachner Legal) ñ Audrey Baverel (LëtzBlock asbl) ñ Boika Deleva (Clifford Chance) ñ Alvaro Garrido Mesa (Loyens Loeff) ñ Biba Homsy (LëtzBlock asbl) ñ Anne-Marie Nicolas (Loyens Loeff) ñ Tobias Seidl (Avocat à la Cour) Malta ñ Dr. Christian Ellul (E&S Group) ñ Dr. Mariella Baldacchino (E&S Group) ñ Dr. Anton Mifsud (E&S Group) ñ Jason Grewal (E&S Group) Poland ñ Jacek Czarnecki (ed.) ñ Dr. Jacek Dybiński ñ Prof. Iwona Karasek-Wojciechowicz ñ Prof. Witold Srokosz ñ Marcelina Szwed-Ziemichód Slovenia ñ Nejc Novak, LL.M. (UCL) (Novak Law) ñ Ambrož Arko, MLB (Bucerius) (Novak Law) ñ Nejc Setnikar (Novak Law) Switzerland ñ Dr. Luka Müller (MME Legal | Tax | Compliance) ñ Stephan D. Meyer (MME Legal | Tax | Compliance) 3 © 2019 www.thinkblocktank.org Contents Part A Introduction ...................................................................... 6 Part B EU Legal and Regulatory framework .............................. 9 1. Overview of relevant EU regulation ................................................................ 10 2. Token classifications under EU law ................................................................. 13 2.1 Security Tokens .................................................................................................................... 13 2.2 Cryptocurrency Tokens ....................................................................................................... 14 2.3 Utility Tokens ....................................................................................................................... 15 2.4 Hybrid Tokens ...................................................................................................................... 15 3. When do tokens fall within EU securities laws? ............................................. 16 3.1 The MiFID II definition of Financial Instruments ................................................................ 17 3.1.1 Transferability ........................................................................................................... 18 3.1.2 Standardisation ......................................................................................................... 18 3.1.3 Negotiability on a Capital Market ........................................................................... 19 3.1.4 Not a Payment Instrument ....................................................................................... 20 3.1.5 Functional comparability with shares or other securitised debt instruments ....... 22 3.2 The MAR definition of securities ......................................................................................... 23 3.3 The UCITS definition of securities ...................................................................................... 24 3.4 Conclusion ........................................................................................................................... 24 4. Obligations under the AML regimes .............................................................. 27 4.1 AML Regulation under AMLD 4 .......................................................................................... 28 4.2 AML Regulation under AMLD 5 .......................................................................................... 29 5. Obligations under MiFID ................................................................................. 32 5.1 MiFID Financial Instruments ................................................................................................ 32 5.2 MiFID Authorisation of Investment Firms ........................................................................... 32 5.3 MiFID Client Classifications ................................................................................................ 33 5.4 Trading Venues under MiFID .............................................................................................. 34 5.5 MiFID’s General Obligations .............................................................................................. 35 4 © 2019 www.thinkblocktank.org 6. Obligations under the Market Abuse Regulations ........................................ 37 6.1 MAR – Trading Facilities ...................................................................................................... 37 6.2 MAR – Insider Trading Restrictions..................................................................................... 39 6.3 MAR – Extended Territorial Scope ..................................................................................... 40 7. Obligations under Competition Laws and Unfair Commercial Practices Laws ................................................................................................... 42 8. Obligations to provide information ................................................................ 43 8.1 EU Prospectus Regulations information requirements ...................................................... 44 8.2 EU Consumer Rights Directives information requirements ............................................... 45 8.3 EU Distance Marketing of Consumer Financial Services Directive information requirements ........................................................................................................................ 46 8.4 E-Commerce Directive information requirements ............................................................. 46 9. Obligations under E-money regulations ........................................................ 47 9.1 E-money licensing requirements ........................................................................................ 47 9.2 Qualification as E-money .................................................................................................... 47 9.3 E-money licences for players holding fiat balances ........................................................... 48 10. Obligations under EU Investment Fund regulations ..................................... 49 10.1 Obligations under the UCITS Directive .............................................................................. 49 10.2 Obligations under AIFMD ................................................................................................... 49 Appendix A: Summary of Various Information Requirements .......................................................... 51 Part C National legal & regulatory frameworks in select European countries .......... (see accompanying document) 5 ©