Crypto-Assets and Initial Coin Offerings (ICOs)
What are crypto-assets?
Crypto-assets are digital assets, which are based on cryptography (encryption), are decentralised (not issued by a relevant competent authority) and mostly use the so-called blockchain technology. It is also a general name for electronic ‘coins’ or ‘tokens’. Among the most common crypto-assets are Bitcoin, Ether, Litecoin and Ripple. The process by which many crypto-assets are created is called mining.
Types of crypto-assets
The features and functions of crypto-assets, also known as electronic coins or tokens, are various:
- Virtual assets – no rights are attached to them; they can only be used as a means of exchange for fiat currencies and other virtual assets or as a means of payment for goods and services;
- Utility tokens – may be used, for example, for a future purchase of services or products provided by the entity that ‘issues’ the tokens;
- Investment tokens – may give an investor the right to participate in the management or assets (future profits) of the entity that ‘issues’ the tokens.
Contents
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I. What are Initial Coin Offerings (ICOs)?
‘Initial Coin Offerings’ (ICOs), an alternative method of financing, represent an innovative and significantly expanding means of raising capital from the public to be used to finance the projects of specific persons. Electronic ‘coins’ or ‘tokens’ are created and subsequently offered and sold to the public in exchange for fiat currencies (e.g., Euro) or, more frequently, for virtual assets (e.g., Bitcoin and Ether). These transactions are mostly arranged via the Internet and social media.
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II. Legislation
Issues related to crypto-assets, ICOs and their regulation is being widely discussed globally, as well as individually amongst EU Member States and EU bodies and institutions. Behind these discussions is, on the one hand, the growing importance of crypto-assets/ICOs and the increasing volume of funds involved and, on the other, the need to manage risks entailed by this alternative method of financing.
Currently, neither Slovak nor European law expressly regulates crypto-assets and ICOs, although some of their features may be covered.
In January 2019, the European Securities and Markets Authority (ESMA) issued a document technical advice analysing the current market in crypto-assets and describing the functioning of these assets and ICOs. The document also considers the question of whether the current legislation of the EU or its Member States applies to crypto-assets and ICOs.
According to the analysis, some crypto-assets may be considered financial instruments; however, most of them are not covered by the EU law. If, in specific cases, crypto-assets are assumed to be financial instruments, ESMA suggests that EU legislation should apply to them (including to their issuers and/or companies providing related investment services/activities), in particular:
- MiFID II
- Prospectus Regulation
- Market Abuse Directive
- Short Selling Regulation
- CSDR
- Settlement Finality Directive
The analysis concludes that the assessment of whether a crypto-asset qualifies as a financial instrument depends on the implementation of MiFID II in an EU Member State’s law and is within the ambit of national competent authorities, having regard for the specific features of individual cases.
The European Banking Authority (EBA) has issued a report on the relevance of current EU legislation to crypto-assets. The document concludes that certain crypto-assets might qualify as electronic money if they meet all definition criteria. However, the EBA indicates that most activities related to crypto-assets are not covered by the current EU legal framework. The EBA believes that if crypto-assets qualified as electronic money, the application of the Second Payment Services Directive should also be considered.
Legal acts within Národná banka Slovenska’s remit neither regulate crypto-assets, their mining and trading, nor define them. These acts do not lay down any obligation to obtain authorisation to issue or trade in crypto-assets, nor do they impose any requirements in relation to the conduct of such activities.
Authorisations to perform regulated activities granted by Národná banka Slovenska in accordance with relevant law (e.g., foreign exchange licence, authorisation to provide payment services, authorisation to issue electronic money) do not cover the issuance of or trading in crypto-assets, even if it involves the purchase or sale of crypto-assets for the euro or foreign currencies.
In Slovak law, crypto-assets are not considered financial instruments under Act No 566/2001 on securities and investment services. Nor do they qualify as securities since they do not fit the definition of securities, particularly the requirement for a record made in a form stipulated by law.
FAQ
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What type of license/registration is required to provide a crypto-asset services in Slovakia?
Answer:
Crypto-asset services are currently not a regulated activity in Slovakia within the scope of mandate of National Bank of Slovakia, therefore crypto-asset service providers do not need any kind of regulatory approval or license from National Bank of Slovakia in order to conduct its activities in Slovak Republic.
However, based on Act No. 279/2020 Coll., which is amending Act No. 297/2008 on the prevention of legalization of proceeds from criminal activity and terrorist financing, all businesses engaged in exchange services between virtual currencies and fiat currencies and custodian wallet providers for virtual currencies will need to be registered by Trade Licensing Office, in order to provide these services in Slovakia.
Above mentioned activities (exchange services between virtual currencies and fiat currencies and custodian wallet providers for virtual currencies) belong to regulated trades. Therefore, in addition to general criteria (over 18 years old, legal capacity and criminal record) entrepreneur or responsible representative have to fulfill additional criteria (completed secondary general education or completed secondary vocational education.)
More information regarding Trade Licensing are available at:
https://www.minv.sk/?trade-licencing