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ESBG position: Regulatory treatment of Initial Coin Offerings, cypto-assets

ESBG position: Regulatory treatment of Initial Coin Offerings, cypto-assets


​​​​ESBG, ​Rue Marie-Thérèse, 11, B-1000 Brussels, ESBG Transparency Register ID 8765978796-80

November 2018​ | >>.pdf version

Albeit small in size when compared to financial markets, the development of crypto-assets markets and of the related Initial Coin Offerings (ICOs) has attracted a lot of attention from businesses looking for an access to alternative sources of finance and investors drawn by the promises of quick gains. As savings and retail banks caring for both our corporate and retail clients, ESBG welcomes that policy makers are taking interest in the regulation of these new assets and activities.

Indeed, ESBG is concerned by the numerous reports of abuses of retail investors' credulity, as well as the emergence of highways circumventing policy frameworks carefully crafted over the last decades, which accompanied the use of the blockchain technology. In particular:

  • Regulatory uncertainty on ICOs leaves room for a growing part of the economy that remains in regulatory limbo, helping new firms flourish at the expense of heavily regulated competitors and investors' protection.

  • The growing risks stemming from the impact cyber-attacks can have on the ICO market needs to be addressed too, for instance when a crypto exchange has their crypto-currencies stolen.

  • The lack of rules similar to the prospectus regulation combined with the often inexistent due diligence performed by investors attracted by quick gain promises allows ICOs appearing to be scams to go through.

  • The lack of identification of investors, as well as the non-application of market abuse regulations to crypto exchanges, allow a high degree of speculation and market manipulation through techniques such as, dumping, spoofing, front running or whales[​1]

  • The anonymity of the wallet holders and the existence of blockchains specifically designed to ensure secrecy over the sender, the receiver and the amount transferred, create virtually risk free ways of laundering money originating from criminal activities or hiding the financing of terrorist organisations.

  • The uncertainty on the value of tokens pre- and post-sale increases risks of price volatility which could cause financial stability issues in the future.

  • There is a significant lack of clarity regarding the fiscal rules applying to tokens raised through ICOs and other crypto-assets.  


For these reasons, while ESBG welcomes the continuous development of crypto-assets and ICOs, decisions need to be made with regards to the application of the EU financial markets regulatory framework to these new assets or services without undue delay. Because of their similarities on many aspects with traditional assets or services (financial instruments and Initial Public Offerings), it is paramount that, on the one hand, investors benefit from an equally high level of protection, and, on the other hand, a regulatory level playing field is ensured.

​In order to best tackle these risks ESBG would like to make the following recommendations.


1.      Market venues for virtual currencies and tokens must be organised


In particular there needs to be guarantees in terms of:

  • price transparency;

  • fight against money laundering by submitting traders, platforms or issuer of crypto-tokens to AML regulations;

  • applying rules on market abuse/manipulation to cryptocurrency trading platforms; and

  • information disclosure.


ESGB welcomes the extension of the AML Directive scope of obliged entities to exchange services between virtual currencies and fiat currencies and custodian wallet providers, requiring them to be registered. However, this does not cover the entities providing exchange services between virtual currencies only. ESBG considers that they should also be specifically regulated and subject to a licence that make them apply AML regulations. Protecting the traditional financial system should not be the only point of view of policy-makers while crypto-assets allow to directly purchase goods and services, therefore providing a way for criminals to profit from revenues originating from illicit activities.

ESBG believes that at the minimum a clear regulatory framework is needed on those issues. All national regulators in the EU already require authorisation for a virtual currency exchange to be established, however there needs to be a harmonised framework, in particular with regards to the rules attached to this authorisation.

​If not, consumers of utility tokens and investors in security tokens may find it particularly challenging to bring any revenues into the ordinary financial system. Specifically, ESBG feels that regulators should thoroughly review the AML risks associated with the various stages in a crypto-asset lifecycle, and related activities, and provide clear direction as to their treatment. For example, within the KYC processes, promoting a safe adoption by all players.


2.      Crypto assets should be properly legally defined and classified among existing or new categories

The associated consumer protection issues primarily stem from the lack of a globally consistent view on how these novel products should be classified: whether they falls under an existing financial instrument category or requires an ad hoc classification. As a result, consumers suffer from the lack of consistent protection. Fragmented regulation, even at the regional level, complicates this issue further. To address this issue adequately, global coordination and alignment is needed to effectively address these globally active products. The “case-by-case" approach of national supervisors can only be temporary while a global coordination on the application of the existing regulations takes place. Actions from authorities at EU level is also paramount.

It seems also important to be able to categorise the nature of tokens. Depending on this nature, different regulations could apply. Sharing a common taxonomy of tokens could help all stakeholders to have a better understanding of the necessary diligence. However it should be kept in mind that tokens have their own lifecycle and can change from a category to another while the project they support evolves. Some degree of flexibility is needed in this respect.

In this context, ESBG supports the ESMA's SMSG Own Initiative Report on Initial Coin Offerings and Crypto-Assets published on 19 October. In particular it welcomes the advice given to ESMA to provide level 3 guidelines on the interpretation of the MiFID definition of “transferable securities", “commodities", and the concepts of MTF and OTF, with respects to crypto-assets and market venues for virtual currencies.


3.      Define a regulatory framework for ICOs

​ESBG is particularly in favour of an EU regulations for ICOs as there does not seem to be a single supervisory approach in applying the EU financial market regulation for those entities. Indeed, ESBG does not consider that regulatory arbitrage within the EU would have to be tolerated. ESBG supports that a specific legislative proposal for a regulation with a dedicated impact assessment should be put forward by the European Commission.


ESBG advocates for the setting up of external audit requirements for firms issuing tokens through ICOs, as well as initiatives regarding education and digital skills both for investors and regulatory authorities. In addition, the accountancy aspect of ICOs should be explored further and ESBG supports EFRAG's work on clarifying the treatment of cryptocurrencies under IFRS Standards. In this context ESBG also calls on Member States to provide legal certainty on the taxation of crypto-assets.

​ As stated previously, ESBG supports the innovation brought by the development of crypto-assets and ICOs. However, ESBG believes that this innovation should not allow a new era of fraud, deception, money laundering, tax evasion and financial instability, which are the very reasons why the banking sector is exceptionally regulated nowadays.


​About ESBG (European Savings and Retail Banking Group)

ESBG represents the locally focused European banking sector, helping savings and retail banks in 20 European countries strengthen their unique approach that focuses on providing service to local communities and boosting SMEs. An advocate for a proportionate approach to banking rules, ESBG unites at EU level some 1,000 banks, which together employ 780,000 people driven to innovate at 56,000 outlets. ESBG members have total assets of €6.2 trillion, provide €500 billion in SME loans, and serve 150 million Europeans seeking retail banking services. ESBG members are committed to further unleash the promise of sustainable, responsible 21st century banking.

​Published by ESBG. November 2018


[1] For examples of glaring market abuses that would result in jail time if it would take place in financial markets:

Digitalisation; Innovation; Innovation Hub