Virtual currencies and ICO’s are regarded cautiously due to recognition of the risks but also the benefits of virtual currencies and the underlying blockchain technology: Both ESMA and the Central Bank of Ireland have issued warnings to investors and consumers regarding their highly speculative nature, lack of regulation and usual protections available for other financial products, and potential flaws in the technology
There is no explicit regulation on ICOs and the issuance of token/coins in this jurisdiction. However, where tokens/coins constitute a form of “security” the regulations applying to the issue of securities in Ireland will apply to the issue of the token/coin.
The current legislative framework in Ireland is based on the EU-wide securities law regime, in the form of
- The Prospectus Directive;
- The Markets in Financial Instruments Directive
- The Alternative Investment Fund Managers Directive (AIFMD); and
- The Fourth Anti-Money Laundering Directive.
The regulator in Ireland (the Central Bank of Ireland) is also focusing on the global trend of ICOs and recently issued a statement echoing the alert issued from the European Securities and Markets Authority (ESMA) warning investors and consumers of the risks they face when investing in ICOs or virtual currencies [.]
The Fifth Anti-Money Laundering Directive will bring ICO’s and virtual currencies within its scope.
Restrictions: There are no explicit restrictions on ICOs or the issuance, distribution and/or transfer of tokens/coins in this jurisdiction. However issuances, tokens/coins may be subject to existing legislation where they fall within the scope of such regulation (see above regarding token/coin issues being deemed to be the issue of a security). For example, where an ICO constitutes an offer of “securities” to the public a prospectus may be required to be published under the Prospectus (Directive 2003/71/EC) Regulations 2005, as amended. “Securities” for the purposes of these Regulations means “transferable securities” as defined in Article 4(1) of Directive 2004/39/EC (MiFID). The term “transferable securities” is broadly cast and includes securities equivalent to shares and securities giving rise to a cash settlement.
Licence cost: There is currently no explicit regulation of ICO’s and as such there is considerable uncertainty surrounding the (i) status of ICO’s/coins or tokens, (ii) the future path of any regulation and (iii) the stability of the overall market. However, there is a debate underway across Europe about the needs/merits of regulation, the scope of regulation and the risks of regulation.
Token classification: There is no clear guidance as to the status of tokens/coins, rather their status must be considered on a case by case basis, for example whether they are a “transferable security” then they will come within the scope of MIFID and the Prospectus Directive may apply. This gives rise to significant uncertainty. So far the only regulatory guidance issued from the Central Bank of Ireland on initial coin offerings is to warn investors and consumers of the risks involved in investing in ICOs. Prospectus Recently Gerry Cross, Director of Policy and Risk at the Central Bank of Ireland noted that “where the features of any given ICO match those of financial instrument issuance, then financial regulation applies, as of this moment, and issuers and others must, subject to legal penalty, ensure that they comply with the relevant rules”.
AML/KYC: Given the current uncertainty as regards the status of tokens/coins, one particular area of concern for regulators is AML and KYC compliance noting that some blockchains do not restrict who can join the network, who validates the transactions and who has permission to approve smart contracts.
The Fifth Anti-Money Laundering Directive will bring virtual currency exchanges and custodian wallet providers within the scope of anti-money laundering requirements.