Bitcoin: from a ground-breaking technology doomed to disrupt the banking and payment system to a devilish creature that threatens tax-payers’ money. The abrupt change in perception toward the digital asset demands a cross-border analysis and a regulatory intervention by the Financial Market Authorities.

Starting off with the Euro area, the European Central Bank (ECB) has recently published a statement (on bitcoins) outlining the dangers for investors, but without intervening with specific regulations. Although the approach of the ECB toward the digital asset is extremely wary and cautious (especially toward c) the ECB governor made clear that the Bank is highly interested in the blockchain technology (especially in bitcoin) due its potential in the banking system as well as the post-trading mechanism.

The European Commission, on its part, has recently set up the Observatory and Forum on the blockchain in order to monitor the most innovative implementations of this technology as well as to finance them and to, eventually, foster (among businesses, states and citizens) the adoption of blockchain-related products [1].

Within the EU territory each Member State is tailoring its own regulatory approach. In Gibraltar, for the example, after the enactment of the regulatory framework on DLT [2], which substantially considers the distributed ledger technology (DLT) providers as financial intermediaries, it has been announced that an upcoming law on ICOs will be passes, which will formally render DLT providers liable in case an ICO turns out to be a scam.

In February 2018 FINMA (the Swiss Financial Markets Authority) published a series of guidelines [3] to clarify when ICOs promoters are subject to the same rules applying to banks and financial intermediaries (including, but not limited to the mandatory prior authorization and the ruled aimed to counter money-laundering). Interestingly enough, with the latter document, FINMA introduces a rigid classification scheme (which differentiates among utility token, payment token, investment token) under which all different cases happening in practice need to be subsumed – different regulatory regimes apply.

In Germany BaFin (the German Financial Market Authority) issued a statement [4] in order to clarify the obligations binding ICOs promoters. Contrary to the Swiss approach, the German Authority does not introduce a general classification, but identifies the laws applicable to specific tokens that can be assimilated to stocks rather than units (shares) in an investment fund or any other financial instrument.

 With the implementation of MIFID II into French law, the French Financial Markets Authority has recently released an official statement making clear that offers of derivatives on crypto-currencies are prohibited unless duly and authorized by the very same authority and restating that the promotion of the latter offers is forbidden if made through electronic instruments.

In Asia the situation is more diversified. On the one hand there are China and South Korea imposing disclosure obligations and subjecting bitcoins’ trading platforms to prior regulatory scrutiny when not shutting them down outright. On the other hand, Japan recognized crypto-currencies as legal payment tool in 2017 and many firms are indeed used to pay employees’ salaries in crypto-currencies.

In the United States the SEC (and many other National Financial Markets Authorities) has intervened in disfavor of crypto-currencies related activities. For instance, the Texas Securities Board issued a restrictive order against BitConnect [6], while the Texas Department of Banking has issued an order of discontinuance against AriseBank, a cryto-currencies platform. However, it is worth pointing out that the SEC Chairman has stated that crypto-currencies and ICOs could be deemed valid and innovative financing tools for enterprises.

Over the past few months investors are increasingly becoming wary toward bitcoin (due to its volatility and the recent drop in value) as well as token financing (due to recent ICOs which turned out to be scams), therefore public perception may end up to being aligned to that of the above mentioned regulators.


References

[1] ECB Explainer 13/02/2018 (https://www.eba.europa.eu/documents/10180/2101654/Letter+from+Olivier+Guersent+COM+replying+to+the+EBA+Letter+on+RTS+on+SCA+and+CSC+-+13022018.pdf/faf94000-a982-4ef2-84f5-d1dc3e5a30ee).

[2] DLT Framework entered into force 01/01/2018 (http://www.gibraltarlaw.com/wp-content/uploads/2018/01/PFL-January-2018-p13-14.pdf).

[3] Practice guide on ICOs 16/02/2018 (https://www.finma.ch/en/news/2018/02/20180216-mm-ico-wegleitung/).

[4] BaFin clarificationGZ: WA 11-QB 4100-2017/0010 (https://www.mwe.com/en/thought-leadership/publications/2018/03/bafin-provides-guidance-icos).

[5] AMF clarification 22/02/2018 (http://amf-france.org/en_US/Reglementation/Dossiers-thematiques/Marches/Directive-MIF/L-AMF-modifie-son-guide-sur-le-financement-de-la-recherche-dans-le-cadre-de-MiFID-II).

[6] Texas State Securities Board Order No. ENF-18-CDO-1754 (.https://www.ssb.texas.gov/news-publications/order-no-enf-cdo-1754).


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