More Securities Regulators Chime In About ICO Issuance

November 17, 2017

For several months, thought-leaders have advocated to those advancing ICO Issuance aka Initial Coin Offerings they should presume the need to conform to regulatory goal posts within the context that their initiatives are securities offerings. The wisdom is that issuers need to embrace financial industry best practices by providing a legitimate offering prospectus and said prospectus should contain all of the components that conform to regulatory regimes in which the issuer is domiciled, and the regimes in which ICO subscribers are domiciled.  Now, Austrian Financial Market Authority (“FMA“) regulators are chiming in with the same view point, following the guidelines that various regulators across the globe are embracing.

Courtesy of, below excerpt to “FMA Clarifies its Regulatory Approach Towards ICOs” should be required reading for those keeping their fingers on the pulse of ICO Issuance regulatory trends.

Whether your company is a fintech startup, or simply planning a private placement offering available to a select universe of friends and family, seeking to raise capital from qualified investors or accredited investors via a Initial Coin Offering (ICO), an initial public offering (IPO) via an exchange listing, a properly prepared offering prospectus or offering memorandum is required by your investors and industry regulators that govern securities offerings. Issuers seeking affordable investor document solutions rely on experts at

The Austrian Financial Market Authority (Finanzmarktaufsicht – FMA) has updated its FinTech-Navigator to include specific information on how initial coin offerings (ICOs) are to be treated under Austrian law.

Whereas the FMA has generally confirmed that ICOs are unregulated under Austrian law, the Fin-Tech Navigator now includes a broad overview of potential regulatory and capital markets requirements that may apply in connection with an ICO.

Most of the potential requirements come as no surprise and are largely in line with the opinions expressed in Austrian legal writing, including our own Legal Insight of 30 September 2017.

The following article summarises the key findings from the FinTech-Navigator and contains selected remarks on the FMA’s view.

Banking licence requirements

  • Issuing coins and accepting fiat currency (eg euro) in exchange for the coins instead of other crypto currencies like Bitcoin or Ether may be treated as a licensable deposit business under the Austrian Banking Act (BWG) provided that the moneys paid/exchanged for the coins are repayable.
  • If the terms of the ICO provide for the coins to be accepted as a payment instrument, this could – depending on the exact terms and structuring of the ICO – be treated as the licensable banking business of issuing payment instruments.

    Comment: It is still unclear (and remains to be clarified) how the FMA will treat typical “utility tokens” (ie tokens that grant the holder the right to obtain goods or services from the issuer or certain related parties). Would such utility tokens already be treated as payment instruments?

  • Persons who engage in capital market transactions structured via coins (eg securities are issued in the form of coins) may be treated as providing the licensable third-party securities underwriting business.

    Comment: Depending on how strictly the FMA exercises its supervisory powers, this view of the FMA could potentially impact the business model of crowdfunding platform providers. In particular, the FMA will need to clarify that this view will not adversely affect platform providers’ rights under the Austrian Alternative Financing Act (AltFG).

  • If securities are held for third parties – irrespective of the technical basis of such safekeeping (arguably: including holding such securities for others via blockchain technology) – this may be treated as a custody business.

    Comment: Depending on how ICO Issuance schemes are structured, this may potentially impact the business model of wallet providers. If coins are purposely structured as securities (eg to make use of the Single European Passport under the Prospectus Directive), the FMA’s strict approach could result in electronic wallet providers being subject to banking licensing requirements.

Financial instruments under MiFID II

  • Coins may be qualified as financial instruments under the MiFID / MiFID II implementation and the Austrian Securities Supervision Act (Wertpapieraufsichtsgesetz – WAG) provided they are structured similar to common securities like debt or equity instruments. Indications are that the coins bear voting or similar rights, convey profit participation, are tradeable, bear interest rights or the repayment of the purchase / issue price upon maturity.
  • If coins are structured similarly to derivative instruments (eg elements / rights / entitlements of the coins are linked to other cryptocurrencies or other tokens), such coins may be qualified as financial instruments irrespective of whether they would meet the requirements to be qualified as securities.

To continue reading the Mondaq report, click here

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