Name
Global FinTech Guide
Country _ Name
Ireland
SectionTitle
ICO/token sale
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Companies and projects have increasingly relied on the sale of digital assets, or tokens, as a means of fundraising. These tokens generally do not grant the holders an ownership interest in the issuing company or project, but may provide governance rights, access rights or other utility. This has been conducted through public sales known as initial coin offerings (ICOs), proliferation through token generation events (TGEs) or private sales, among other mechanisms.  While showing characteristics of traditional methods of fundraising, there are a range of unanswered questions related to the legal classifications of such products. As ICOs and TGEs will usually be distributed online and internationally, there is usually no single legal framework applying to such transaction, and the legal framework of each market in which the tokens may be offered or sold needs to be considered.

Introduction

Attitude of the country towards ICOs/token sales

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.
In a similar vein to its warnings on crypto currencies, the Irish Central Bank has warned customers of the high risks associated with Initial Coin Offerings in its 'Alert on Initial Coin Offerings Information Notice' from December 2017 and in March 2022 of the risks of investing in crypto assets and misleading advertisements in conjunction with other European Supervisory Authorities. The Central Bank noted that Investors should be aware of the following issues with ICO campaigns:

  • unregulated activity, vulnerable to fraud or illicit activities.
  • high risk of losing all invested capital.
  • lack of exit options;
  • extreme price volatility;
  • inadequate information; and
  • flaws in the technology.


Legal affairs

Presence of any explicit regulation on ICOs and the issuance of token/coins

The MiCA Regulations came into effect for businesses issuing tokens or coins at the end of June 2024. MiCA governs the rules surrounding asset-referenced tokens, e-money tokens, and utility tokens, requiring a new authorisation which will be granted EU-wide for successful firms. For companies that offer token custody and administration services, the exchange of fiat currencies for crypto-currencies and reception and transmission of crypto-assets, among a range of other activities, will be considered crypto-asset service providers under MiCA. CASPs will similarly required authorisation (which will grant EU-wide passporting rights) from December 2024, with a transition period for pre-existing CASPs running until December 2025.



Presence of any explicit restrictions on ICOs or the issuance, distribution and/or transfer of token/coins

The issuance, distribution, and transfer of tokens has been subject to regulation since the introduction of MiCA in June 2024. With the new explicit legislative framework in place, firms which do not obtain MiCA authorisation are not eligible to lawfully trade tokens under the regulation.



Obligations and requirements to issue token/coins
Once categorised as a VASP, coin/token issuers will be subject to registration requirements with the Central Bank of Ireland.
If the issuance of token/coins issued is deemed a 'financial instrument' or 'transferable security', then they may require authorisation as a trading platform.
If the issuer is trading in token/coins and they accept and hold funds on behalf of investors, they may also be caught by legislation which requires a Banking Licence.
Banking licenses can cost circa €250,000 and the application process can last from 1-2 years.
Tokens that come under MiCA will be required to comply with the following requirements:

  • publish a crypto white paper (outlining a number of areas discussed in further detail at paragraph vi. below);
  • become authorised in the EU under MiCA;
  • conduct governance requirements concerning marketing the disclosure of information and the policy on dealing with conflicts of interest; and
  • prudential requirements which ensure sufficient liquidity with the ability to meet redemption requests.


Classification of token/coins in the jurisdiction

There is no clear guidance as to the status of tokens/coins in this jurisdiction. Rather, their status must be considered on a case-by-case basis, for example if they are a 'Virtual asset' they will fall under the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021 and MiCA, or if they are considered 'transferable security', or some other form of 'financial instrument' then they will come within the scope of the Prospectus Directive or MiFID II.

If a Token is akin to a traditional form of security or a share, the more likely it will fall within the MiFID II Regulations. Similarly, if a token/coin offering involves an 'offer to the public', then it is likely they could be caught by the Prospectus Directive.
Tokens that will be regulated under MiCA are primarily asset-referenced tokens, e-money tokens and ‘any other tokens’ which will primarily include utility tokens. MiCA does not legislate for NFTs along with some other tokens, however, it is intended that this will be dealt with under a ‘MiCA II’ Regulation – although work on this has not yet substantially commenced, talks of such a regulation are ongoing.



Presence of a duty to publish a prospectus bevor offering token/coins to investors

If a token/coin offering is classified as 'transferable security' under Article 4.1(44) of MiFID II, there is a duty to publish a prospectus in Ireland unless certain exemptions apply. Such exemptions include the offering to 'qualified investors' and certain monetary thresholds.
MiCA requires that companies offering any of the tokens covered by the regulation produce a crypto-asset white paper which includes the following information on –

  • the issuer;
  • the token;
  • offers to the public;
  • rights and obligations attached to the token;
  • underlying technology;
  • risks attached;
  • reserve of assets;
  • adverse impacts on the climate and other environmental impacts; and
  • The identity of the person (other than the issuer) that makes offers to the public or seeks admission to trading.


Presence of AML/KYC requirements that are needed to be fulfilled regarding (i) the initial issuance of token/coins and (ii) any following transfer of token/coins to third parties

Virtual asset service providers ('VASPs') operating in Ireland are subject to Ireland's AML/CFT framework as a result of the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021.
In order for approval of an application for registration, the CBI must be satisfied that (amongst other things):

  • the firm's AML policies and procedures are effective in combatting the money laundering and terrorist financing (ML/TF) risks associated with its business model; and
  • the firm's management and beneficial owners are fit and proper.
Firms applying for registration will have to apply form to the CBI together with supporting documentation including:

  • a copy of the firm's AML policies and procedures;
  • a copy of the firm's ML/TF risk assessment;
  • details of all direct and indirect ownership and management in the firm;
  • individual questionnaires to assess the fitness and probity of all individuals who are proposed to hold preapproved control functions (PCFs) in the firm;
  • a business plan setting out the firm's proposed activities, transaction flows, projections and any outsourcing arrangements envisaged;
  • details of the firm's proposed organisational structure, AML reporting lines and staffing arrangements; and
  • details of the firm's AML/CTF training plan.
Firms should also be aware of the relevance of MiCA to their trading activities. Firms applying for MiCA registration will have to apply to the CBI, as the national competent authority in Ireland to become authorised under MiCA. The following information is required by the CBI from MiCA applicants:

  • identity of the applicant;
  • programme of operations;
  • description of the governance arrangements;
  • procedure for segregating client’s crypto-assets and funds;
  • execution of orders policy (where relevant);
  • description of the commercial policy for provision of the service to exchange crypto-assets;
  • submission letter and application form; and
  • white paper outlining the company’s products and services.
Firms applying for MiCA authorisation will also be required to comply with the minimum capital requirements. MiCA issuers are required to hold capital equal to the higher amount of permanent capital requirements (as per Annex 4 of the MiCA regulation, up to a maximum of €150,000) or 25% of the fixed overheads of the preceding year.

Additional comments regarding (i) the legal situation for ICOs/token/coins and (ii) any following transfer of token/coins to third parties

MiCA affects FinTechs that plan to issue tokens/coins on any basis, ICOs included, and it came into effect for such firms in 2024.



Economic conditions

Market size for ICOs/token sales and existence of any previous regulated ICO/token sales in the jurisdiction

There is nothing of further note than the information included above.

 



Additional comments regarding the economic situation for ICOs/token sales or what companies must be aware of in this business area

Please see sections ii – viii above.

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