ICO / token sale
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.
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.
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
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.
Additional comments regarding (i) the legal situation for ICOs/token/coins and (ii) any following transfer of token/coins to third parties
Market size for ICOs/token sales and existence of any previous regulated ICO/token sales in the jurisdiction
This is unknown information, since almost all players of these markets are foreign, without a license.
Additional comments regarding the economic situation for ICOs/token sales or what companies must be aware of in this business area
In case the instrument involved in the provision of the services turns out to be money/funds or a financial instrument, the service provider may face administrative fines as well as a criminal liability.