Regulation of Initial Coin Offerings: Reconciling US and EU Securities Laws

44 Pages Posted: 12 Jul 2018 Last revised: 15 Aug 2018

See all articles by Philipp Maume

Philipp Maume

TUM School of Management

Mathias Fromberger

Technische Universität München (TUM) - TUM School of Management

Date Written: June 15, 2018

Abstract

Initial Coin Offerings (ICOs) are currently the hottest topic in the financial markets. They typically use blockchain technology to offer so-called ‘tokens’ that can confer various rights. Experts estimate that the amount of money raised via ICOs will reach US$ 20 billion by the end of 2018. Commentators have described the ICO bonanza as a new gold rush. Nevertheless, the legal framework for ICOs remains unclear because traditional securities regulation is designed for classical securities that are traded on a stock exchange. In late 2017, the US Securities and Exchange Commission released two statements that highlighted that tokens may be subject to US securities regulation if they meet the requirements for ‘investment contract’ as laid out in the Howey test. However, regulators in Asia and Europe remain quite vague on the issue. In this article we analyze the legal framework for ICOs in the European Union. It is our view that investment tokens (including hybrid tokens with some investment functions) are ‘transferable securities’ under Directive 2014/65/EU on Markets in Financial Instruments. Despite resting on a highly dissimilar definition, the financial markets law of the European Union, if applied correctly, applies to token classifications – this is comparable with the US Securities and Exchange Commission’s approach. The result would be a similar framework in two of the most vibrant regions for ICOs. It would be a first step towards a harmonized application of securities laws to ICOs, avoiding regulatory patchwork and a possible ‘race to the bottom’.

Keywords: MiFiD, Investment Contract, Blockchain, ICO, Token Sale, Initial Coin Offering, Prospectus, Utility Token, Investment Token, Cryptocurrencies

JEL Classification: E42, E50, G23, G28, K00, K22

Suggested Citation

Maume, Philipp and Fromberger, Mathias, Regulation of Initial Coin Offerings: Reconciling US and EU Securities Laws (June 15, 2018). Chicago Journal of International Law, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3200037 or http://dx.doi.org/10.2139/ssrn.3200037

Philipp Maume (Contact Author)

TUM School of Management ( email )

Arcisstrasse 21
Munich, 80333
Germany

HOME PAGE: http://www.law.wi.tum.de

Mathias Fromberger

Technische Universität München (TUM) - TUM School of Management ( email )

München
Germany

HOME PAGE: http://www.law.wi.tum.de

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