Security Tokens and Prospectus— When do you need to prepare a prospectus in the European Union?
ESMA published in January 2019 a categorisation of ICOs into three types: the payment-type crypto asset, the investment-type crypto asset and the utility-type crypto asset. The classification helps to distinguish the different laws which apply. Christian Steiner published an in-depth analysis of the different categories according to European/Austrian law.
For security tokens (investment-type crypto assets) in the European Union the main regulatory rules come from the prospectus directive, MIFID II, AIFM directive, and the banking and exchange regulation.
The prospectus directive requires the preparation of a document which holds the main information of the security itself. The prospectus is a document, which normally has several hundred pages with an in-depth presentation of the investment product and its associated risks. The preparation of such a document is done together with a law firm and triggers a lot of preparation work. This has also been seen by the European Union, which made major changes to the prospect directive in 2017. This includes some exceptions from the prospectus directive for smaller funding rounds. Below Euro 1 Million there is no requirement to prepare a prospectus. Per member state an exception for funding campaigns of up to 8 Million Euro is possible and it depends on the regional decision how they implemented the exception. Besides the exception, member states have the possibility to add additional requirements, for example, a consumer information document.
Therefore, especially for smaller funding rounds below 8 Million Euro, the thresholds below which the obligation to publish a prospectus does not apply, are a major condition of whether funding can take place or not.
In December 2019, ESMA published an overview of the thresholds per member state, below which the obligation to publish a prospectus does not apply (document).
In the following table you see the situation in the EU Member states based on the publication from ESMA:
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