As token offerings (also called ICOs) have risen to prominence over the last year, regulators around the world have wondered how to approach these disruptive financial mechanisms. On October 26, 2017, Autorité des marchés financiers (AMF) – the stock market regulator in France – announced the Universal Node to ICO Research & Network (UNICORN), an initiative to support and study fundraising based on cryptocurrency and blockchain technology. Concurrently, the AMF solicited public comment on how to regulate token offerings through a consultation paper. Comments can be sent to email@example.com until December 22, 2017. Actors and companies considering a token offering are also encouraged to contact the AMF via email (firstname.lastname@example.org).
Token offerings are “intended to finance technological projects at an early stage of their development,” wrote the AMF, noting that “purchasing tokens requires a good understanding of the nature of these projects, the underlying technology and the related risks.” Typically, the function and utility of a token is specific to a project. The rights, voting power, and value of a token can vary dramatically.
According to the AMF, risks presented by token offerings include:
- Absence of specific regulation;
- Risks related to the information documents;
- Risk of loss of capital;
- Risks of volatility or the lack of a market;
- Risk of money-laundering and scams;
- Risks associated with the projects financed.
The regulator is considering three avenues for token offering supervision:
- Promote best practices without changing existing legislation;
- Extend the scope of existing texts to treat token offerings as public offerings of securities;
- Propose ad hoc legislation adapted to token offerings.
According to the AMF, token offerings generally conform to a three-step process: announcement of the offering; publication of the offering (i.e., white paper and explanation of the how the project will use its proceeds); and sale of tokens.
Per the AMF, there is no reliable source to calculate how much money has been raised through token offerings, but from January to September 2017, the equivalent of approximately 1.5 billion euros ($1.8 billion USD) was raised globally. The AMF also remarked on the international nature of projects. “It is possible that certain ICO communities are located in several countries and should therefore ... be considered as multinationals or even stateless entities,” wrote the AMF. To date, at least four token offerings have been undertaken in France.
In its consultation document, the AMF included a series of questions to guide public input. The regulator seeks contributions on white paper standardization, accounting models for token offerings, reporting requirements for projects, and potential licensing requirements among other issues.
The AMF also referenced ongoing discussions by other regulators including the US Securities and Exchange Commission, United Kingdom’s Financial Conduct Authority, the Financial Services Commission of South Korea, the People’s Bank of China, the Monetary Authority of Singapore, and BaFin in Germany.