Luxembourg based ICO's: new guideline from the CSSF

Initial coin offering (the “ICO”) and, more generally speaking, crypto-currencies related topics are at the heart of the current discussions in the Grand Duchy of Luxembourg which is one of the most active and innovative financial place in Europe.

In this context, the Luxembourg financial sector authority (Commission de Surveillance du Secteur Financier or “CSSF”) has communicated on ICO by publishing a press release on 14 March 2018[1].

In essence an ICO is as a new financing method used by innovative companies seeking to raise funds outside the standard path and which combines sort of public fundraising with participative investment. Cryptocurrencies with different form and features, leveraging on the underlying blockchain technology, are used to materialize and back such new financing tools.

Thanks to its flexibility and the opportunity for entrepreneurs to access investors’ funds outside the regulated scope of a standard initial public offering or bank lending, ICOs have become very popular last years with exponential amounts raised. Financial sector’s players are expecting authorities to clarify and/or offer a competitive specific framework to ICOs.

In its press release, the CSSF has given several guidelines for Luxembourg based ICOs:

- ICOs remain purely unregulated so far, in a sense that no specific regime or legal framework have been specified for them. It, however, does not means that no regulation at all will apply. Depending the specific features of the ICO, existing rules on prospectus, transparence, financial instruments and anti-money laundering would have to be respected anyway.

- ICOs are risky operations with few or no protection for the investors who may lose the full investment made on it.

- ICOs are not suitable investments nor assets for UCITs and other Luxembourg regulated investment funds reserved to retail investors. This however imply, that ICOs may be initiated from Luxembourg for professional and well informed investors.

That prudent and somehow conservative approach of the CSSF should however not prevent the legislator from being innovative and coming in the near future with a brand new and specific dedicated legal framework for Luxembourg’s ICOs. Story to be continued….