A LEGAL FRAMEWORK IN CONSTRUCTION
Tokens are recorded and exchanged on a new type of electronic bookkeeping infrastructure that relies on distributed ledger technology, i.e. blockchain. In the last five years, the technology has gained such momentum that regulators started actively studying how tokens could fit in the existing regulatory frameworks, or alternatively, how current rules could be adapted to include tokens within their scope.
At European level, ESMA (European Securities and Market Authority) has been actively monitoring the topic, consulting the industry and publishing several advisory reports on the matter. ESMA’s work provides the legal groundwork on which to build the European “token” regulatory framework of tomorrow. In its latest recommendation of January 2019, ESMA makes a distinction between two types of tokens: those qualifying as financial instruments, and the others. For the first type, the full set of EU rules governing financial instruments is deemed applicable by the EU regulator. However, ESMA also highlights the lack of an appropriate legal regime for tokens not qualifying as financial instruments, recommending the creation of a dedicated harmonised European regime.
In France, the introduction of the Sapin II law and of the ‘Blockchain ordinance’ in 2017, meant that the legal existence of certain financial securities (e.g. non-listed securities, shares of mutual funds) registered on a blockchain was recognised for the first time. In parallel, the PACTE law – which is to be adopted later this year – will create a regulatory framework for utility tokens and crypto-asset service providers, notably by establishing an optional certification process for token issuers willing to conduct an ICO.
Elsewhere, tokens have attracted regulatory attention from countries all around the world. Many regulators are actively looking into, or have started developing their own ‘crypto’ legal framework. Examples of such initiatives can be found on all continents, ranging from countries like Liechtenstein, Malta, Switzerland and Estonia, to South Africa, Japan and Venezuela. Undoubtedly, 2019 will be a year of significant regulatory developments in the blockchain and crypto arena.