ICO’s 2020 CONSOB Report – The Capital
· Defining updates on Consob cryptoactivities
On 19 March 2019, Consob published a document for “Initial offers and crypto-activity exchanges”.
1 On the first point, the unclear distinction between those attributable to financial and non-financial instruments in the area of crypto assets emerged.
“Financial instrument” means, ex-MIFID discipline, a unitary euro interpretation, which therefore cannot rely on national interpretative additions, and which includes
– Stocks and similar
– Bonds and similar
– Any other security capable of buying or selling securities, related to currencies, interest
– Financial derivatives contracts
– Money market instruments
– Units of collective investment undertakings
2 DLT-BLC
The report also makes an appropriate distinction between distributed ledger technologies pure and blockchain technology, clarifying, for use and consumption by non-experts, that the blockchain is a DLT but not all DLT are blockchain, as the latter creates a chronological concatenation of blocks, and is a species of the general DLT category.
There is no obligatory connection between DLT, therefore, crypto activity, because there are financial facts such as security or commodity tokens.
Consob here wants to refer only to crypto activities, which use the dlt technology, and not other financial instruments.
3 Reference to an underlying business project
Consob does not consider it indispensable, so as not to overlook phenomena such as tokenization (asset tokens).
We wonder about the reference to the definition of entrepreneur and business activity taken from Article 2082 of the Italian Civil Code. For greater protection, it is appropriate to refer to and enhance the aspect of protection of the use of savings aimed at financing economic activity. The result is investment=token=right to future performance, also with negotiating power, but excluding mere tokenization operations. Therefore, the discipline in question concerns token offers (utility tokens) not similar to financial instruments.
4 Owners and identifiability
Consob will limit itself to supervising and delegating control activities to the platforms responsible, not only for first issue offers, but also for subsequent stages.
5 Trading element
It is noted that this element is not always identifiable, as some tokens are not tradable at the ICO stage, as well as crypto activities without ICO. As the market favors a form of economic return, there is a need for verification of the destination for trading (ultimate goal), which can be seen in the initial White Paper, where the “ICO — exchange promoter” agreement will also have to be reported.
6 Locution of crypt activity
For Consob, this refers to activities other than financial instruments pursuant to Article 1 of the TUF and investment products.
PLATFORMS
A stand-alone application for an examination is established under the dual opt-in scheme to ensure the liquidity of the crypto investment and the reliability of the trading platform. “Crypto assets are intended to be traded within one or more exchange systems”.
Transparency framework, with:
– White Paper
– Annual updates on WP
– Extraordinary updates on WP
The operators would intervene only in the initial phase; the following phases would be left to the automatisms of the smart-contract and the underlying technological infrastructure, which would be subject to the obligation to verify the reliability of the platform manager (also through technological sponsors).
Regulation and supervision (opt-in) of exchange systems on a voluntary basis.
The introduction of a specific discipline for custody services has also been proposed.
Requirements for exchange systems, for the purposes of Consob registration, based on compliance, business continuity, due diligence, transaction monitoring, information on crypto activity and cybersecurity. These managers may also make available for trading cryptoassets not covered by ICOs offers, provided they have sufficient information sets. It also opens to IEOs, an alternative model of token offers on exchange platforms, cheaper, more transparent, more reliable, more liquid (newly issued tokens would be immediately scalable on the “secondary”).
CUSTODY
The operation of the housing systems = wallet has been illustrated.
Exchanges work both as trading platforms and as custodial wallets.
It has been suggested to regulate the custody service, separately from the exchange activity, to cover also the custodial wallet provider only (to protect those who want to deposit the tokens purchased in an ICO, without participating in exchange trading activities).
In this way, a Consob registry could be created, (opt-in) of “digital portfolio services” different from “crypto activity exchange systems”: in the former, also the services of holding private cryptographic keys would be included, taking care also of exquisite cybersecurity profiles.
Requirements for voluntary registration in the Consob digital portfolio services provider register would be:
(a) rules and procedures relating to customer identification;
(b) measures to adequately protect cryptoasset and ensure their segregation; and conservation, as well as appropriate rules and procedures with regard to the investment of resources financial;
(c) measures to enable the efficient settlement of trading transactions relating to the cryptoasset stored by it;
(d) procedures to identify and manage the risks associated with the performance of the services;
(e) appropriate organizational and operational safeguards, including on business continuity; and computer security;
(f) appropriate procedures for the management of conflicts of interest;
(g) sufficient financial resources for sound and prudent management.
All Rights Reserved
Raffaella Aghemo, Lawyer
Published at Tue, 21 Jan 2020 02:05:26 +0000
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