The European Securities and Markets Authority (ESMA) has issued two statements on initial coin offerings (ICOs), one on the risks of ICOs for investors and one on the rules applicable to firms involved in ICOs.

In the statement for firms, ESMA states that depending on how they are structured, ICOs may fall outside the regulatory perimeter. However, where the coins or tokens qualify as financial instruments it is likely that the firms involved in ICOs conduct regulated investment activities, such as placing, dealing in or advising on financial instruments or managing or marketing collective investment schemes. They may also be involved in offering transferable securities to the public. ESMA reminds firms that it is their duty to consider the regulatory framework, seeking the necessary permissions and meeting the applicable requirements. Such requirements include the:

  • Prospectus Directive;
  • Markets in Financial Instruments Directive;
  • Alternative Investment Fund Managers Directive; and
  • Fourth Anti-Money Laundering Directive

ESMA’s statement to investors discusses some of the main risks. In particular ESMA states that ICOs are highly speculative, and depending on how they are structured, may fall outside the regulated space, in which case investors do not benefit from the protection that comes with regulated investments.

View ESMA highlights ICO risks for investors and firms, 13 November 2017