Owing to a rapid growth in initial coin offerings (ICOs) globally, ESMA has issued two statements, one on the risks for investors and one on the rules applicable to firms involved in ICOs. Points to note:
- Depending on how ICOs are structured they may fall outside of the scope of EU laws and regulations intended to provide investor protection.
- ICOs are vulnerable to the risk of fraud or money laundering.
- Where ICOs qualify as financial instruments, it is likely that firms involved in ICOs conduct regulated investment activities and therefore need to comply with relevant legislation such as the Prospectus Directive, the Markets in Financial Instruments Directive (MiFID), the Alternative Investment Fund Managers Directive (AIFMD) and the Fourth Anti-Money Laundering Directive as implemented.
- Firms will need to give careful consideration as to whether their activities constitute regulated activities; failure to comply with the applicable rules will constitute a breach.