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Crowdfunding and ICOs

European Commission Announces Proposals in Fintech Action Plan - On 8 March 2018, the European Commission published a Fintech Action Plan for a more competitive and innovative European financial sector.

The Action Plan has three main objectives:

  • to support innovative business models to scale up across the single market;
  • to encourage the uptake of new technologies in the financial sector; and
  • to increase cybersecurity and the integrity of the financial system.

The Action Plan sets out a number of proposals to advance these objectives, including in the areas of crowdfunding and initial coin offerings (or ICOs):


The Commission has announced a proposal for the introduction of an EU Regulation in the area of crowdfunding.

Crowdfunding is the term given to the practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via an online platform.  It is a form of alternative fundraising structured to fall below the offer threshold at which the requirement to produce an EU securities law prospectus is required (€5 million).  Crowdfunding can improve access to capital for certain types of businesses, especially start-ups and other small companies, which can market their projects via the internet and call for support in the form of a loan or equity from investors.  Crowdfunding investors are largely individual investors looking to commit a small amount of money to a project but can also include institutional investors and venture capitalists.  Today crowdfunding is mainly conducted on the basis of national legislation, which means that platforms are subject to diverging rules depending on the country in which they operate.  This raises compliance and operational costs and makes it difficult for crowdfunding platforms to provide their services cross-border.

The Commission’s proposal is intended to make it easier for crowdfunding platforms to offer their services EU-wide.  Once adopted by the European Parliament and the Council, the proposed Regulation will allow platforms to apply for an EU label based on a single set of rules. This will enable them to offer their services across the EU.  Furthermore, investors on crowdfunding platforms will be protected by clear rules on information disclosures, rules on governance and risk management and a coherent approach to supervision.


Regulators in many countries worldwide have been assessing market developments in crypto-assets and the emergence of ICOs, a new way of raising money using what are called ‘coins’ or ‘tokens’, and evaluating the regulation that may be applicable to them.  China and South Korea have banned ICOs outright.  While such token sales may offer businesses new and innovative ways of raising capital, they can also present significant risks to investors.  Speculative investments in crypto-assets and ICO-tokens expose investors to market risks, fraud and to cybersecurity risks.  In November 2017, the European Supervisory Markets Authority (ESMA) issued two statements to inform investors of potential risks posed by certain ICOs and to remind firms involved in ICOs that these activities may fall under existing EU legislation, depending on their precise structure and characteristics.

In the Action Plan, the Commission points out that the rapid price increase and volatility of crypto-assets over the past months requires a better understanding of the risks and opportunities that go with their use and a better understanding of the applicability of EU regulation.  The Commission notes that crypto-assets and tokens may escape existing regulation and the transparency, governance and investor protection objectives that such regulation pursues.  Accordingly, the Commission takes the view that an assessment of the suitability of the current EU regulatory framework with regard to ICOs and crypto-assets more generally is necessary.

The Commission notes that regulation should aim to make sure that EU firms, investors and consumers can take advantage of this technical innovation within a fair and transparent framework in order to make Europe a leading player in developing new ways to rapidly fund growing businesses, while appropriately addressing potential financial stability, market integrity, investor and consumer protection, personal data protection and money laundering and terrorist financing-related risks.

The Commission concludes that, as crypto-assets are a worldwide phenomenon, international coordination and consistency will be essential.  As a measure to be adopted, in the course of 2018, the Action Plan provides that the Commission will continue monitoring the developments of crypto-assets and ICOs with the European Supervisory Authorities, the European Central Bank and the Financial Stability Board as well as other international standard setters.  Based on the assessment of risks, opportunities and the suitability of the applicable regulatory framework, the Commission will then assess whether regulatory action at EU level is required.

At Matheson, will continue to monitor all developments in this area and update you as matters progress.

The European Commission’s Fintech Action Plan can be accessed in full here.

Authored by Fergus Bolster, Partner, Corporate M&A and Equity Capital Markets, and Susan Carroll, Associate, Corporate M&A and Equity Capital Markets