This article is written by one of our contributor Oded Van Kloeten.

Many people in the fin-tech sphere believe that capital regulations are omnipresent and are ultra strict. U.S. regulators for example, attempt to fit digital assets into their existing frameworks to have a standard template to base their issuance on, while EU is regulated under the fully defined MiFId II. The MiFId II legislation defines what constitutes as a security. Though the European Securities and Markets Authority (ESMA) was very dynamic in trying to define and restrict it, the EU classification is quickly becoming the most likely and simple to apply to security token offerings.

From the entrepreneurs end, leaders in the Cryptocurrency community look to conciliate their ideals with the need to work with regulators. This abundance of information in various directions has created vast confusion and a mix of which country supports/allows which financial operations. Let’s try and sort major regions in Europe and how they define blockchain securities.

Understanding MIFID II

An STO (Security Token Offering), is a fundraising mechanism that issues tokens that perform the same function as standard stock exchange security, alongside it’s ownership, obligations and projections, built on secured blockchain.

Security tokens are regulated as securities under MIFID II — Financial Instruments Directive (2014/65/EU). This is the most important piece of relevant European legislation defining what a security is. European law regarding issuing and trading securities is currently being integrated into various investments and financial instruments and is in the process of gradual unification. Issuing, offering and trading Security tokens are now fully compliant and easier then ever before across Europe.

Currently, the compliant issuance of ‘transferable securities’ in the EU public offering requires a prospectus approved by the national financial regulator of the relevant member country. An approved prospectus as a relatively easy stepping stone, makes EU very attractive ground for operations, compared to the regulatory environment in the US under SEC. Things are bound to become even easier with a new prospectus regulation planned for July 2019. Many expect the new prospectus to allow for even easier tokenization of securities in the EU.

Digital Assets Laws in Europe

Although MIFID II is the legislation basis for every action of this type in Europe — some countries have an additional facilitation- some even declare that if certain criteria are met, a prospectus is not even necessary (In Czech Republic, a prospectus is not even necessary if the total value of issued securities does not exceed 1M EUR). Below is an overview of some of the progress in noted EU states:

Malta

Clear regulatory guide lines and official government statements had labeled Malta as the most security token-friendly country in the world. While cryptocurrencies are not legal tender, they are recognized by the government as “a medium of exchange, a unit of account, or a store of value”.

Finland

The Central Union of Agricultural Producers and Forest Owners (MTK) is the first Finish government organisation to use a blockchain pilot project is used by employment offices and other related parties to manage employment in local communities.

Switzerland

Switzerland has been one of the most successful countries for ICOs: Swiss-based ICOs raised over $500 million in 2017, accounting for 14% of the global ICO market. While Switzerland isn’t part of the EU, they are part of the European Economic Area (EEA), which makes EU laws applicable. In addition, Swiss lawmakers have promised to allow for the larger cryptocurrency industry to have full access to its conventional banking systems.

Estonia

The Estonian Financial Supervisory Authority (EFSA) has been very careful around crypto and securities, stating that every ICO is unique and should therefore be examined according to their own distinctive characteristics. With basically non existing cryptocurrency regulations – many enterprises in the blockchain space were drawn to Estonia to setup their home base.

Germany

On September 25, 2018, the 4th Criminal Division of Berlin Court of Appeal ruled that Bitcoin trading without a proper license is not punishable as Bitcoins are not a financial instrument within the meaning of the German Banking Act. This means that “traditional” (payment) cryptocurrencies are not financial instruments according the German law (Banking Act) but security tokens are yet to be examined and ruled by BaFin (Germany’s securities regulator).

The future for security laws in EU

2019 may hold fantastic opportunities for European security offering as we see existing laws continue to modify for the integration of distributed ledger technology and easier entry barriers.

Some firms have already sold/issued their security tokens and have been using the countries’ regulatory ground rules to better navigate and decided on the best suitable option for them. NEXT, a connected car platform had announced their expansion and compliance zone to be Spain. Mesh group, a Finnish company which specializes in “pay later” solutions and consumer lending will incorporate in Finland as their home base. BitBond, a blockchain based lending platform, had announced a couple of weeks back their plan to raise ~4M USD in Germany and many other examples added everyday.

Having the technological edge and eco-system grasp of the above, Stellerro Plans to Launch Its Fully Regulated STO in Spain, Under ESMA Regulations, by Mid -June 2019