Tokenisation as tradable securities is possible up to EUR 8 million
A new opportunity to take advantage of blockchain technology to finance your project.
On 13 April 2021, Law 5/2021 of 12 April was published in the Official State Gazette (BOE), amending the revised text of the Capital Companies Act and other financial regulations, which came into force on 4 May, which also amends the Consolidated Text of the Securities Market Act, adapting it to Regulation (EU) no. 2017/1129 of the European Parliament and of the Council of June 2017 on the prospectus to be published in the event of a public offer or admission to trading on the stock exchange.2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market and repealing Directive 2003/71/EC.
The amendment to art. 35 TRLMV raises to eight million euros the amount in public offerings above which it is mandatory to prepare and publish a prospectus, except in the case of the credit institutions sector, for which the threshold must remain at five million euros due to the complexity of their activity and structure as issuers. In these cases, the CNMV (Comisión Nacional del Mercado de Valores) will have the power to require a prospectus when the issue does not exceed the aforementioned thresholds and the complexity of the issuer or the financial instrument in question makes it advisable to do so.
Previously, the CNMV in its report of 8 February 2018 entitled “Considerations of the CNMV on “cryptocurrencies” and “ICOs” aimed at professionals in the financial sector ” already assimilated the issuance of cryptocurrencies and tokens to the issuance of negotiable securities, requiring compliance with the obligations of the Securities Market Law (LMV), such as the presentation of an issuance document or prospectus.
Thus, the CNMV considers that tokens giving the right to access services or receive goods or products (“utility tokens”), which are offered with explicit or implicit reference to the expectation that the purchaser or investor will obtain a benefit as a result of their revaluation or any remuneration associated with the instrument, or by mentioning their liquidity or the possibility of obtaining a benefit as a result of their revaluation or any remuneration associated with the instrument, or by reference to their liquidity or tradability on markets equivalent or potentially similar to the relevant securities markets (“security tokens”), shall be considered to be transferable securities, unless no correlation can reasonably be established between the expectation of appreciation or profitability of the instrument and the performance of the underlying business or project.
The regulator’s position is that both cryptocurrencies and the so-called “tokens”, which are issued when launching an ICO (Initial Coin Offerings) or STO (Security Tolen Offering), would fall under the concept of negotiable securities in art. 2.1 of the Securities Market Law, and should therefore be subject to its requirements; in particular the preparation of an issue document or prospectus, the maintenance of an accounting register and the assumption of certain responsibilities.
Thus, in the case of ICOs that are not considered to be public offerings because they involve a total amount of less than 8 million euros, the provision contained in article 35 of the TRLMV is applicable, relating to the intervention of an authorised entity (ESI or Investment Services Entity) for the purposes of marketing, which implies that this entity must carry out general supervision of the process and validate the information to be provided to investors, which must be clear, impartial and not misleading and must refer to the characteristics and risks of the securities issued, as well as to the legal and economic-financial situation of the issuer in a sufficiently detailed manner to enable the investor to make an informed investment decision and the exemption from publishing a prospectus.
On the other hand, it should be noted that purely occasional transactions do not require the intervention of an authorised entity to carry out the placement of tokens considered to be negotiable securities. Only activity carried out on a professional or regular basis will require the intervention of an entity authorised to market them. Given that most of the transactions raised can be covered by Article 35.2 LMV” referring to those cases in which there is no obligation to publish a prospectus, issuers are advised to abide by the above criteria.
Moreover, the CNMV considers that the preparation of a prospectus for an ICO may encounter difficulties due to the absence of a harmonised model at European level, which leads to dysfunctions with the other European authorities with regard to the prospectus passport approved by the CNMV.
However, if a prospectus is necessary due to the specific characteristics of the transaction, the CNMV will adapt it and “takeinto account the principle of proportionality” with the aim of “reducing the complexity and length of the document as far as possible“.
This legal amendment to the Capital Companies Act allows, from 4 May 2021, the economic threshold to be increased to eight million euros without the need to draw up the issue document and publish the prospectus for STOs (“Security Token Offering”) or ICOs (“Initial Coin Offering”) whose tokens are expected to appreciate in value.
This quantum leap makes it possible to structure asset and company tokenisation transactions within the characterisation of tokens as tradable securities, which enables new forms of project financing in digital form, 24/7 and for both fungible and non-fungible assets.
AddVANTE has a multidisciplinary team that can accompany you in your exciting project to provide you with the legal coverage that allows regulatory compliance and provides you with the highest degree of legal security to carry out new investments and develop your projects.