When we talk about the Security Token Offering in Europe, one needs to consider Prospectus Directive and the European Securities and Markets Authority (ESMA) regulations that apply to the member states, which primary objective is to protect securities investors. Despite the general regulations in Europe, some member states such as Switzerland, Malta, Lithuania, Gibraltar, Jersey, Isle of Man, and France have already worked on local regulation of STOs.
However, North European countries; Sweden, Denmark, Finland, and Norway have decided to take a careful consideration approach to regulate the emerging market. These jurisdictions while implementing the general regulations of the EU have decided to wait and see before rolling out regulations and classifications for crypto assets.
Security Token Offering regulation in Finland
In September last year, the Finnish Ministry of Finance recently published a draft government bill for legislation on virtual currency providers. According to the bill, companies that are offering security tokens will be required to comply with the national rules and implement the regulations put in place for securities across Europe. The Finnish Financial Supervisory Authority in the country is tasked with determining if a token offered is a security and if so, the issuer will be required to implement Prospectus Directive, the Alternative Investment Fund Managers Directive, or the Markets in Financial Instruments Directive accordingly. Security token issuers will also have to register with the Finnish Financial Supervisory Authority before they are allowed to properly market their tokens.
By regulating security token issuers, also implies that other obligations such as know-your-customer requirements will be imposed on the issuers.
The Finance ministry in its bill stated that the above regulations set up by the EU already covers the actions needed to be taken regarding marketing and offering the financial instruments. The Finnish government recognizes that further regulations will follow. There are assessments on the suitability of the current regulatory framework in Europe regarding security token offerings and ICOs, and the Finnish government believes that more regulatory action at both the national and EU level may be required.
Security Token Offering regulation in Denmark
The FSA in Denmark while recognizing that the general cryptocurrency market in the country is still unregulated has noted that security tokens are financial instruments that fall under their regulatory scope. The agency has been tasked with studying token offerings in the country and determining if they are securities or not.
For security token offerings, the FSA has advised security token issuers to carefully look into the Danish financial regulations and EU financial regulations, specifically the Prospectus Directive, the Alternative Investment Fund Managers Directive, the Fourth Anti-Money Laundering Directive, and others when offering their tokens.
Within the current regulations, authorized fund managers in the continent will be able to market their security tokens to professional investors in any of the member states under the passport header.
The Securities and Markets Stakeholders Group (“SMSG“) published a report towards the end of last year where it advised the European Securities Markets Authority (“ESMA“) on crypto assets and tokens. In its report, the SMSG listed Denmark as one of the countries that have adopted a ‘wait and see’ approach regarding regulating their local token space.
The Danish FSA has told investors looking to purchase security tokens that they have no local regulations governing the marketing and consumer participation asides the general rules applicable across the EU. The FSA is yet to consider special regulations on a national level but will most likely do so as the security token space evolves.
Security Token Offering regulation in Norway
In Norway, the FSA has yet to provide specific rules or guidelines for security tokens offered in the country. According to the SMSG recommendations to the ESMA, Norway is one of the countries in the EU that is yet to have a clear stance on security token offering regulations.
At the moment, the security token regulation used in the country is the one implemented across the continent. Security token issuers in Norway will be required to abide by the Prospectus Directive put in place by the EU. This prospectus and other anti-money laundering regulations to be followed by the STO issuers were designed by the EU to protect investors in the continent.
The issuers are required to submit clear and comprehensive information to the FSA, available in their official language. Even though the Norwegian FSA doesn’t have an internal financial regulation in place for token issuers, they will be required to review the prospectus applications submitted and give their verdict. The FSA also ensures that the token issuers are registered with them, this makes it easier to keep tabs on their activities and know if they follow the set regulations or not.
At the moment, there is no clear sign that authorities in Norway will take a proactive approach towards regulating security token market in the country.
Security Token Offering regulation in Sweden
In Sweden, there is no specific guidelines or rules for security tokens at the moment. Sweden being one of the jurisdictions in the EU with an undefined approach to security token offering regulation is a surprise. This is because the country has taken favorably to cryptocurrencies in general, with the country’s apex bank already in the process of developing the e-krona, a digital version of their currency.
However, security token issuers in Sweden will have to abide by the EMSA and Prospectus Directive regulations that apply to EU member states. The local FSA body has previously warned investors on ICOs, but it is tasked with looking into the security token issuers to ensure that they abide by the set regulations.
The extent of regulation in the country stops at the report released by the FSA in 2017 which recognizes that companies in the country can raise funds via token sales. For the security token industry in the country to grow, there will be a need for more regulations to augment the Prospectus Directive and ESMA recommendations already in use.