On 10 November 2021, the Crowdfunding Regulation ((EU) 2020/1503 - European Crowdfunding Service Provider Regulation - "ECSPR") will enter into force. In a first post, we reported on the scope of application of the ECSPR and the permission requirement for crowdfunding service providers; in a second post, we reported on the ongoing requirements for crowdfunding service providers and their duties of conduct. In this third post, we will address the question of how crypto tokens are to be treated under the ECSPR.
The recital (15) of the ECSPR make a statement about crypto tokens when it refers to initial coin offerings:
"Whilst initial coin offerings have the potential to fund SMEs, innovative start-ups and scale-ups, and can accelerate technology transfer, their characteristics differ considerably from crowdfunding services regulated under this Regulation."
However, this does not mean that all crypto tokens fall outside the scope of the ECSPR. Both the German version ("Ausgabe neuer virtueller Krypto-Token") and the French version ("offres initiales de jetons") are somewhat unclear in their respective language versions. If we look at the English version, on the other hand, it does not speak of crypto tokens, but of the term "initial coin offerings", which is a common term in the market. Initial coin offerings, or ICOs for short, are not generally understood to mean the issuance of any tokens, but usually only those that qualify as utility tokens or currency tokens in general usage. The issuance of security tokens, on the other hand, is referred to as a Security Token Offering - STO.
It therefore seems obvious that only ICOs should not fall under the ECSPR, whereas STOs can in principle fall under the ECSPR. This is also supported by the indication that the characteristics of ICOs differ too much from those of crowdfunding. This is because security tokens do have parallels to crowdfunding, as will be shown in the further course of this article. Therefore, investment instruments do not fall outside the scope of the Regulation solely because they are crypto token.
The ECSPR applies in principle to crowdfunding services. These are activities for the intermediation of loans or the placement or intermediation of transferable securities and instruments authorised for crowdfunding purposes. Thus, tokens can fall under the ECSPR if they are a loan, a transferable security or an instrument authorised for crowdfunding purposes.
Utility tokens and currency tokens are generally structured in such a way that they do not fall under either the concept of a loan or the concept of a transferable security. The ECSPR defines loan as
"an agreement whereby an investor makes available to a project owner an agreed amount of money for an agreed period of time and whereby the project owner assumes an unconditional obligation to repay that amount to the investor, together with the accrued interest, in accordance with the instalment payment schedule;"
Utility tokens are usually structured in such a way that the acquirer receives a good or service, but no repayment of the amount paid. Currency tokens are also not usually structured as a loan.
Security tokens, on the other hand, regularly fall under the concept of transferable securities - at least in the opinion of the German Federal Financial Supervisory Authority (BaFin).
As BaFin qualifies security tokens as transferable securities, their issuance is subject to the preparation and publication of a securities prospectus within the meaning of the Prospectus Regulation (Regulation (EU) 2017/1129). Under an exemption from the Securities Prospectus Act, the preparation of a securities information sheet may also be sufficient. This obligation now changes for security tokens issued by way of crowdfunding.
The obligation to publish a prospectus under the Prospectus Regulation will not apply in the future if the offer is made by an authorised crowdfunding service provider and the threshold of less than EUR 5,000,000 has been met. The German Securities Prospectus Act also does not apply to such an offer.
Thus, in the future, only the regulations of the ECSPR are applicable to STOs via crowdfunding service providers, but not those of the Prospectus Regulation or the Securities Prospectus Act.
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Sep 22 2023
Sep 22 2023