On 14 March 2018, the Commission de Surveillance du Secteur Financier ("CSSF") released two publications entitled "warnings" on initial coin offerings ("ICOs") on the one hand, and tokens and cryptocurrencies on the other hand.
Even though the CSSF warns investors of the risks inherent in cryptocurrencies and fundraising through ICOs, it recognises the innovative potential of blockchain technology within the banking sector.
ICOs are commonly used to raise funds in order to finance the launch of new cryptocurrencies or any other new projects. In return for this financing, digital coins or tokens, carrying electronic rights, are issued by the initiator and allocated to the participant.
In the absence of a legal definition, the CSSF refers to the European Central Bank, which defined cryptocurrency as a form of unregulated digital money not issued or guaranteed by a central bank, which can act as a means of payment.
Because of the absence of national, European and international legislation, the CSSF warns investors participating in ICOs, investing in tokens through dedicated platforms or investing in cryptocurrencies. The CSSF highlights risks such as fraud, theft, money laundering, liquidity shortage, high price volatility, complete loss, technological failure, embezzlement and false or misleading information.
Even if the publications are issued as "warnings", the CSSF does not prohibit or prevent the launching of such activities in Luxembourg. The CSSF is interested in all initiatives and invites those seeking to launch a cryptocurrency activity to submit their projects to the CSSF in order to determine whether such an activity constitutes a regulated activity. As regards ICOs in particular, the CSSF underlines that depending on its characteristics, the launching of an ICO may be subject to a number of regulations and regulatory requirements. In any case, the initiator of ICOs must implement procedures to prevent money laundering and financing of terrorism.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
