October 18, 2019

October 18, 2019

Subscribe to Latest Legal News and Analysis

October 17, 2019

Subscribe to Latest Legal News and Analysis

October 16, 2019

Subscribe to Latest Legal News and Analysis

ESMA Highlights ICO Risks

On November 13, the European Securities and Markets Authority (ESMA) published two statements (statements) in relation to initial coin offerings (ICOs); one was made in relation to the risks of ICOs for investors and the other is in relation to the rules for firms involved in ICOs. ICOs are a way for businesses or individuals to raise finance by issuing coins or tokens, the features and purposes for which can vary substantially.

ESMA stated that it has observed a rapid growth in ICOs, globally and in Europe, and is concerned that investors may be unaware of the high risks that they are taking when investing in ICOs. Additionally, ESMA is concerned that firms involved in ICOs may conduct their activities without complying with relevant applicable EU legislation.

In relation to investors, ESMA noted the high risk of losing all invested capital due to the fact that ICOs are very risky and highly speculative investments, adding that the price of the coin or token is extremely volatile and may not be redeemable for prolonged periods. ICOs are also vulnerable to fraud and money laundering.

For firms, ESMA stated that where ICOs qualify as financial instruments, regulated activities are likely to occur, at which point a range of European legislation can apply. Such legislation would include the Prospectus Directive, the Markets in Financial Instruments Directive, the Alternative Investment Fund Managers Directive and the Fourth Anti Money Laundering Directive. ESMA stressed that firms should give careful consideration to such requirements.

The statements are available here and here.

©2019 Katten Muchin Rosenman LLP


About this Author

Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

+44 0 20 7776 7629
Neil Robson, private equity fund managers counselor, Katten Law Firm, London

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of financial services groups, and structuring and marketing of investment funds. Neil is a frequent speaker at industry conferences regarding developments in UK financial services regulation, including the AIFM Directive, short selling and market abuse.