Germany’s financial watchdog BaFin has published a statement outlining the way cryptocurrencies such as bitcoin and related investments should be classified.
“For some time now, BaFin has been receiving an increasing number of queries enquiring whether tokens and virtual currencies (referred to as ”tokens“) marketed to investors in initial coin offerings (ICOs) are considered to be financial instruments,” it said.
“In order to fully satisfy any legal requirements, these market participants must give careful consideration to whether the tokens constitute a regulated instrument, for instance a financial instrument or a security.”
In an advisory note, BaFin said a case-by-case assessment is required to determine a token’s legal classification.
To be deemed a security within MiFID II, for example, a token must meet criteria such as transferability, negotiability on markets or trading platforms and also embody shareholder rights or creditor claims.
On the other hand, “if the token is in fact based on a unit in a collective investment undertaking, it also constitutes a financial instrument” within the meaning of the MiFID II.
If a token meets the criteria for a financial instrument or security, it could fall under supervisory requirements being applied to a market participant.
“Affected market participants should allow sufficient time to clarify any doubts about the regulation of tokens with the competent BaFin divisions before proceeding with planned projects or business,” said BaFin.