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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
The Hungarian National Bank (MNB) as the local regulator of the financial market maintains a hostile stance against services using ICOs/token sales and has issued several warnings to existing and potential investors regarding the volatility of the related markets.
Legal affairs
Presence of any explicit regulation on ICOs and the issuance of token/coins
Assuming that ICOs/tokens/coins do not qualify as money or financial instruments (as defined in the relevant statutory provisions), these services fall outside the scope of financial regulations and the supervisory scope of the MNB. MNB (and the European Union) is constantly investigating the crypto currency market, proposing legislative changes, and issuing warnings regarding risks associated with investing in ICOs/tokens.
Presence of any explicit restrictions on ICOs or the issuance, distribution and/or transfer of token/coins
N/A.
Obligations and requirements to issue token/coins
Assuming that ICOs/tokens/coins do not qualify as money or financial instruments (as defined in the relevant statutory provisions), no separate license is needed.
Classification of token/coins in the jurisdiction
ICOs/tokens/coins will be recognised as currency/payment instrument, if they satisfy the conditions of ‘money’ or ‘funds’ (in Hungarian: “pénz” and “pénzeszköz”) in the sense of the Banking Act, the Accounting Act and the Payment Services Act.
ICOs/tokens/coins will be recognised as securities, if they function as unilateral legal statements made out in some legal means containing all material information which are implemented, recorded, transmitted, and registered (dematerialised securities), embodying rights in a manner where such rights can be exercised or disposed exclusively by means of, or in possession of, the securities.
ICOs/tokens/coins will be recognised as ‘investment products’ if they qualify as a financial instrument as defined in the Investment Act.
Presence of a duty to publish a prospectus bevor offering token/coins to investors
Assuming that ICOs/tokens/coins do not qualify as money or financial instruments (as defined in the relevant statutory provisions), no prospectus is legally required.
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
If the type of service provider is not an addressee of AML requirements (e.g. because the service it provides does not qualify as a financial service or an investment service, because the instruments do not qualify as money/funds or financial instruments), the service provider does not fall under the scope of the Hungarian AML Act.