Malta is one of only seven jurisdictions which was found to have an ‘evident proactive approach’ in regard to Initial Coin Offerings (ICOs) and digital currencies in recommendations drawn up for the European Securities and Markets Authority.

The other jurisdictions are Switzerland, Lithuania, Gibraltar, Jersey, the Isle of Man and France.

The report was drawn up for ESMA, an independent EU authority, by its Securities and Markets Stakeholders Group which facilitates consultation between ESMA, its Board of Supervisors and stakeholders.

The group mapped legislative developments and regulatory approaches taken by national securities supervisory authorities in the EU and EEA member states in regard to Initial Coin Offerings (ICOs) and digital currencies.

The goal of this report was to advise ESMA on ways to contain the risks of ICOs and virtual currencies, on top of existing regulation, mainly with regards to risks for investors. 

The use of words like “currency” or “initial offering” provides an appearance of legitimacy and protection to various schemes

Thirty-six jurisdictions were covered, and the SMSG found that not all countries had taken the same approach.

“Indeed, the impression that comes across when analysing this research is that countries have either taken a nuanced approach or not expressed a clear/definite approach to the evolving nature, typography or offer of ICOs and crypto assets.

“Of the countries covered herein, no jurisdiction appears to have imposed severe limitations or outright bans for ICOs and crypto assets initiatives or offerings within its territory,” it noted.

The countries were broadly classified into three categories: evident proactive approach (7 jurisdictions); careful consideration (15 jurisdictions); and undefined approach (14 jurisdictions).

With regards to the first category, into which Malta was placed, it said that these jurisdictions had expressly legislated or specifically developed methodologies, criteria or guidelines for assessing how and to what extent ICOs could be considered as financial instruments, thus falling under their respective framework of financial services legislation.

Current rules on securities business, prospectus, anti-money laundering, financing of terrorism and/or market abuse continue to apply to such offerings, as applicable. France is in the process of doing so following recent statements.

SMSG advised ESMA to provide a number of technical guidelines, many of which were centred on the need for clear definitions and supervisory convergence.
With regards to tokens, it urged ESMA to ask the Commission to consider adding these tokens to the MiFID list of financial instruments.

There were 1,930 cryptocurrencies identified in CoinMarketCap as of September, 2018) and most use distributed ledger technology (DLT) in one form (blockchain) or other. However, there is no universal classification of crypto assets.

“The use of words like “currency” or “initial offering” provides an appearance of legitimacy and protection to various schemes. These concepts are, however, improperly used in the world of crypto assets and may mislead investors and lower their risk awareness. It is therefore crucial to define the concepts used in this report,” it said.

The group noted that the number of scams (78%) was very high.

“Even though the dollar value chart show that those are ICOs of smaller size, the high level of failure, fraud and money-laundering through crypto-assets should be of high concern for the EU regulators.”

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