ICOs: Regulatory Landscape and Good Practice Principles

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Recent statements by various regulators around the world demonstrate an increased scrutiny of initial coin offerings ("ICOs"). In order to create a well-functioning global market for ICO fundraisings, a professionalization of the ICO process is urgently needed.

1. Introduction

In this article, Ashurst and svs Capital Partners analyse the German and European regulatory landscape possibly applicable to ICOs and endeavour to formulate good practice principles for ICO issuers from a regulatory and corporate governance perspective.

The good practice principles set out in the article aim to strike a fair balance between the sometimes conflicting needs of ICO market participants. Compliance with these principles should enable ICO issuers to provide a higher standard of consumer protection and help stabilising the ICO market.

2. Regulatory landscape

Under the laws of many jurisdictions, in particular Germany, United Kingdom and the United States, tokens issued in an ICO process have no official status at present. Some tokens, particularly those granting rights against either the token issuer or a third party, have features similar to securities. Other tokens, particularly those without underlying assets or extensive rights against the issuer or a third party, have features resembling fiat currency.

Nearly all regulators who have commented on ICOs thus far have noted that the status and treatment of tokens issued in an ICO process must be considered on a case-by-case basis.

3. Good practice principles

The proposed ICO good practice principles in the article are directed at ICO issuers and comprise (i) general principles, (ii) preparatory principles, (iii) disclosure principles, and (iv) post transaction principles.

The aim should be a fair disclosure by ICO issuers in order to empower investors to make better investment decisions and to use ICOs as an alternative way of raising funds for high quality companies. ICO issuers could use the good practice principles in order to differentiate themselves from ICOs with lower quality and standards of disclosure and to mitigate their risk of liability in connection with the issuance.

To read the full article by international law experts Dr Ian M. Maywald and Matthias von Oppen at Ashurst and their consulting colleagues Ruben Bach and Sven-Roger von Schilling from svs Capital Partners, please follow the Link below. You can read the article in your browser or download it to your device.