German Financial Regulator BaFin Clarifies Stance On ICOs

The Federal Financial Supervisory Authority (BaFin), Germany’s financial regulator, has published a note on the regulatory classification of tokens issued via initial coin offerings (ICO).

The regulator stated that it has been receiving many inquiries about its stand on ICOs and whether tokens distributed during crowdsales are considered financial instruments.

BaFin has issued a “letter of advice” in which it clarified the regulatory classification of the tokens in the area of security supervision. The regulator said this applies to all market participants who provide services in relation to tokens, act with them or publicly offer tokens.

To ensure full compliance with legal requirements, BaFin said market participants are required to check closely the existence of a regulated instrument, such as a financial instrument or a security. In case of any discrepancies, issuers should approach the relevant department at BaFin.

The letter follows a warning on ICOs from BaFin in November 2017. At the time, the regulator said that ICOs are a highly speculative form of investment and that the acquisition of tokens as part of ICOs may result in substantial risks for investors. It also advised investors to do some research on the benefits and risks of the project or investment before deciding to participate.

Last week, the Swiss Financial Market Supervisory Authority (FINMA) issued guidelines on how it intends to apply financial market legislation in handling inquiries from ICO issuers.

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