The requirements of the public offer of financial products in order to qualify an ICO
Under Italian laws, tokens should be qualified on a case-by-case approach, that it is having regard to the nature of the rights embedded in the token. As outlined in a previous contribution, applying the principle of technological neutrality of regulation, tokens could be qualified as “financial products”.
If the token falls within the above mentioned category, the related “public offer”, so called ICO, made in Italy must be considered subject, except for the application of the exemptions provided by law, to the obligation to publish a prospectus, as the case may be, which it should be drafted pursuant to Regulation (EU) 2017/1129 (“Prospectus Regulation“) or in accordance with Article 94 of D. L. no. 58 of 24 February 1998 (“TUF“), which is subject to approval by CONSOB.
What are the requirements of the Italian notion “financial products”?
To date, the regulation of digital tokens – and in particular their reference to the category of “financial products” – presents certain issues of uncertainty, as it is a common fact that the current regulatory framework in the field of financial intermediation and protection of consumer rights is not able to adequately deal with the phenomenon of cryptoactivities.
Therefore, considering that the definition of “public offer” provided by Article 1, paragraph 1, letter t) of TUF, is
any communication addressed to persons, in any form and by any means, which provides sufficient information on the conditions of the offer and the financial products offered so as to enable an investor to decide to purchase or subscribe to such financial products, including placement through qualified entities
the legal qualification of the ICO and the tokens must be carried out on a case-by-case approach, taking into account the extent to which the characteristic elements of the token can be linked to the requirements of the offer of financial products to the public.
In this respect, the necesery requirements of the public offer can be summarised as follows:
- the circumstance that the activity concerns “financial products”, a category that includes – pursuant to art. 1, paragraph 1, letter u) of TUF – both “typified” figures of “financial instruments” and “any other form of investments having a financial nature“;
- the existence of a communication aimed to make the purchase or subscription of said financial products and containing at least a representation of their main characteristics;
- the fact that the communication is addressed to the public resident in Italy.
Finally, if the tokens were not qualified as “financial instruments”, they could be qualified as “form of investments having a financial nature”. In brief, the notion of “form of investments having a financial nature” is investment proposals involving the presence of the following elements at the same time:
- capital investment;
- the promise or expectation that the value of the amount invested will increase without contributions from the investor other than that of giving a sum of money; and
- assumption of a risk directly connected to the capital investment.
In order to protect Italian investors, the Italian Authority for the Supervision of Financial Markets (“CONSOB”), pursuant to Article 7-octies of TUF, exercises its power to counter abusive activity against anyone who offers or carries out investment services or activities via the Internet without being authorised to do so by making the relevant measures public.
In this regard, we highlight the most recent CONSOB measures that have suspended some ICOs in Italy because they are considered abusive in light of the regulations and the categories mentioned above:
- measure n 20944 of 29 May 2019 in relation to the offer of financial products (tokens) called Liracoin-DAMO;
- measure n. 20954 of 4 June 2019 in relation to the offer of financial products promoted by Wachsende Werte;
- measure n. 20845 of 13 March 2019 in relation to the offer of financial products promoted by Avalon Life SA;
- measure n 20844 of 13 March 2019 in relation to the offer of financial products (tokens) called Bitsurge Token.