[Newsflash n. 54]

In the last two weeks Consob suspended two Initial Coin Offerings (“ICOs”) promoted by non-Italian companies addressed to Italian investors: (i) the offer of token TGA by an English company “Togacoin LTD” (Resolution n. 20660 of 31 October 2018) and (ii) the offer of digital currency  Crypton promoted by “CryptoForce Ltd” established in Belize (Resolution n. 20693 of 14 November 2018) as well as the advertisement activity carried on by an Italian individual on his facebook page (Resolution n. 20694 of 14 November 2018).

Those actions undertaken by the Italian Financial Authority are an important signal of how the Italian regulator is addressing the growing phenomenon of crypto assets and related ICO. Decisions that are even more significant in the context of the increased attention at EU level and in response to the findings of the recent Advice to ESMA from the Securities and Markets Stakeholders Group (SMSG) (see our Newsletter n. 12), where the SMSG stresses out how crucial the classification of tokens is in view of potential regulatory intervention and lists Italy among the less proactive EU Member States in dealing with the crypto regulation.

In a regulatory framework characterized by a widespread lack of clarity Consob has taken a firm view with reference to the offer via internet of certain tokens, qualifying them as financial products and, therefore, suspending their public offering as not in compliance with the applicable disclosure requirements.

The reasoning of the Regulator is based on factual circumstances observed on the relevant websites (https://togacoin.com and https://cryptoforce.world) and is briefly outlined below.

Firstly, the Regulator identifies the features of financial products in the proposed investment considering that it involves: (i) the use of capital, (ii) for the purpose of obtaining a financial return, (iii) with the exposure to a risk directly connected with the investment. As such, the investment promoted by Togacoin LTD and by Critpoforce Ltd are deemed to fall under the definition of financial products, which indeed includes not only standardized type of financial instruments but also other forms of financial investments that have the above features (see Article 1(1)(u) of the Italian Financial Act).

Secondly, with the above in mind, the Regulator concludes that both the ICO of token TGA and of Crypton can be qualified as public offer of financial products considering that: (i) the content of the website provides sufficient information on the terms of the offer of assets characterized as financial products, as above, so as to enable an investor to decide to purchase or subscribe them, (ii) the information are presented in standardized form without possibility for one-to-one negotiation of the terms, and (iii) the communication is addressed to the public residing in Italy, as inferred from the content presented in Italian language.

Consequently, since no prospectus is published and notified to Consob, the Italian Authority has determined to use the power of intervention pursuant to Article 99(1)(b) of the Italian Financial Act, and has suspended the offer to the public in Italy of financial products by Togacoin LTD and CryptoForce Ltd for a 90 days period, due to the infringement of applicable provisions of law concerning  public offerings.

In addition, with particular reference to the offer of “Crypton”, Consob has decided to intervene and suspend for 90 days the advertisement activity of the sale performed by a natural person, A.B. In particular, the Regulator held A.B. liable for using his facebook account to entice the public in Italy to subscribe Crypton. Indeed, Consob noticed certain elements proving the involvement of A.B. on his facebook page, which identified him as “regional director of the company CryptoForce Ltd” and contained hyperlinks to the issuer’s website with the express indication of the referrer for the payment of fees.

As mentioned, those resolutions set a precedent and urges market players to assess on a case-by-case basis the characteristics of the crypto assets issued and offered in each specific instance, in line with what can be gathered from the SMSG’s Advice to ESMA.

Please do not hesitate to contact us should you need any further clarification on the above and any other FinTech related matters.


Contacts:

Vito Vittore
Partner

Elena Pagnoni
Partner

Roberta Talone
Associate