There have been significant international developments in relation to cryptocurrencies from regulators and legislators, particularly across Europe and Eastern Europe.


With the release of more explicit guidelines for token offerors in Switzerland, Lithuania and Russia, ICOs are becoming increasingly legitimised as regulators begin to classify and assess the nature of the tokens being offered.


Token offerors are reminded that they should seek legal advice before their seed funding round or ICO to consider not just whether securities laws apply but other obligations including consumer protection obligations and anti-money laundering and counter-terrorism financing regimes.

• Switzerland: Switzerland’s Financial Market Supervisory Authority (FINMA) has published new guidelines for entities wishing to offer an ICO, building on its earlier guidance. While FINMA emphasises that each ICO will be considered on a case-by-case basis, the guidelines are particularly ground-breaking for their classification of the three types of tokens being offered in ICOs (though FINMA acknowledges that hybrid tokens may exist):

• Payment tokens – synonymous with cryptocurrencies – that have no functionality beyond development to become accepted as a means of payment. FINMA has indicated that it will not consider these as securities;
• Utility tokens that are intended to provide digital access to an application or service but may be securities depending on their function in economic terms; and
• Tokens representing assets such as physical assets, companies, earning streams or interest payments. FINMA has likened their economic function to that of equities, bonds or derivatives and noted that asset tokens will require compliance with securities law.

In the guidelines, FINMA has also echoed other regulators around the world in re-asserting the significance of ICO offerors complying with anti-money laundering laws.

• Lithuania: The Bank of Lithuania (LB) has issued guidance on virtual currencies and ICOs. Reiterating its stance that financial market participants providing financial services should not participate in activities or provide services associated with virtual currencies, Lithuania’s central bank also outlined the possible application of laws on crowdfunding, collective investment, investment services and secondary markets to ICOs. Notably, LB echoed other regulators around the globe in asserting that tokens offered during an ICO with characteristics of a security would need to comply with securities law and release a prospectus approved by either LB or a competent authority of another European Union member state.

• European Central Bank: Yves Mersch, a member of the Executive Board of the European Central Bank (ECB) has spoken on whether digital currencies are “money” and the key regulatory actions that need to be taken in relation to digital currencies at the Official Monetary and Financial Institutions Forum. Asserting the importance of regulatory acceptance for virtual currencies wanting to cross over into the mainstream, Mersch noted that central banks needed to be aware of the potential risks that digital currencies pose for price stability and financial stability. Notably, Mersch stated that there was currently no motivation for the ECB to issue its own digital currency as it is unnecessary and the likely negative impacts would outweigh any proposed benefits.

• Russia: The Russian Ministry of Finance and the Bank of Russia have jointly presented a bill setting out the regulatory regime for ICOs and digital currency exchanges. Notably, the bill classifies virtual currencies as a type of digital financial asset. Broadly, only qualified investors, in accordance with Federal Law No. 39-FZ of April 22, 1996 "On the Securities Market" (Federal Law No. 39-FZ), may purchase more than fifty thousand rubles worth of tokens during an ICO while non-qualified investors may only purchase using a “special” wallet. The bill also sets out content requirements for ICO documentation including what is to be included in an ICO’s Information Memorandum. For digital currency exchanges, the bill has specified that exchange operators function in accordance with Federal Law No. 39-FZ and Federal Law No. 325-FZ "On Organized Trading".

• United Kingdom: The Treasury Committee has announced an inquiry into cryptocurrency and distributed ledger technology to investigate the impact on consumers, businesses, financial institutions and the Government, Examining the regulatory responses from the Government, Financial Conduct Authority and the Bank of England, the Treasury Committee is seeking a regulatory balance between consumer protection and innovation.

• United States: The House of Representatives in Wyoming have passed a bill that would exempt some utility tokens from specified securities and money transmission laws provided the tokens were not marketed as an investment, were exchangeable or provided for the receipt of goods or services, and the token’s seller did not enter into a repurchase agreement that would manipulate the token’s price on a secondary market.

Two bills have also been introduced in the Hawaiian Senate, which would require virtual currency transmitters to be licenced, under the state's Money Transmitters Act. If passed, HI SB2853 and HI SB3082 would also require transmitters to issue a warning to consumers wishing to transact in virtual currency, however transmitters would not be required to maintain cash reserves equivalent to the funds held by consumers in virtual currency.

• Facebook: Facebook has banned advertisements promoting ICOs and cryptocurrency. Stating that they are “frequently associated with misleading or deceptive promotional practices”. This comes as various token offerors in the United States have faced class action suits for misleading and deceptive conduct among other claims (discussed here and here).

Gilbert + Tobin - Peter Reeves, Marcus Wong, Hannah Stern, Robert O'Grady and Georgina Willcock