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Tokenisation and Crowdfunding

The digitalisation of assets by means of tokenisation is an exciting trend. Crowdfunding models that use blockchain or distributed ledger technology (DLT) in order to create a digital instrument in the form of a token, and to intermediate them to investors are legally required to decide what the digital instrument is supposed to be: a bond, participation right, joint ownership, the derivative replication of cash flows from an indivisible share etc. Caution: where cash flows are formed from a project that is not operationally active (or for example holds a property).

It doesn’t depend on the technical form, whether physical or digital. Issuing instruments via DLT usually results in standardisation and easy transferability. This may lead to instruments that would otherwise not be securities, such as participation rights become ones by the tokenisation process – with all the consequences under supervisory law (the need for a securities prospectus, investment services requiring a licence as as applicable the requirement of the intermediation platform to be authorised under the Regulation on European crowdfunding service providers for business (ECSPR).

The issuance of such an instrument is conducted as a general rule in an ICO (Initial Coin Offering) or STO (Security Token Offering), in order to offer the instruments. ICOs are generally excluded from the ESCPR (Recital 15), the reason for which being the planned new regulation of crypto-asset services by the European Markets in Cryptoassets Regulation (MiCAR) and the fact that there is no brokerage platform between the investors and issuers. Where, however, a platform is involved, the issuance may also fall under the scope of the ECSPR, in the case that the issued token is a transferable security as defined in the Securities Supervision Act 2018 (WAG 2018).

Crowdfunding platforms that wish to settle payments in virtual currencies such as Bitcoin rather than in fiat money do not provide payment services by virtual of the fact of there being no onward transmission of moneys, but are, however, virtual asset service providers pursuant to Article 2 no. 22 of the Financial Markets Anti-Money Laundering Act (FM-GwG) and are required to be registered with the FMA. They are subject in this regard to regulations in the field of the prevention of money laundering and terrorist financing.