Regulator clarity
What is the regulator's opinion?
CMVM Analysis
Before the project's official launch, on April 5, 2022, the CMVM (Portuguese Securities Market Commission) analysed the project and the LCR token:
The token will only be a security if it is a document representing one or more legal situations of a private and patrimonial nature (i.e., rights and duties) that is comparable to typical securities (i.e., stocks, bonds, etc.).
As such, the company avoided the following:
(i) that there may be a right to income (for example, if the token confers a right to profits or interest);
(ii) the practice of acts by the issuer or related entity appropriate to increasing the value of the token;
The following were removed:
(i) the possibility of depositing tokens and obtaining annual interest,
(ii) the burn functionality, and
(iii) the distribution of periodic income to token holders.
Therefore, the CMVM considered the following:
There is no association between the LCR and an “obligation on the issuer to engage in conduct that results in an expectation of return for the investor, concerning the performance of acts by the issuer or related entity appropriate to increasing the value of the token,” The Commission's understanding is that the LCR is not a security. Noting that the same conclusion extends to the project's NFTs.
The CMVM also recommends that:
The white paper should prominently indicate that the tokens are not securities, and therefore transactions involving them are not subject to the rules applicable to the protection of investors in securities.
In the “Token Distribution” section, there should be no confusion between share capital and tokens. In particular, the reference to “shareholders” has been removed, as the LCR will not be a security token representing Cripteracia's share capital. Additionally, references to the amount to be allocated to the “Lucrar token liquidity pool” (€25,000) have been revised to clarify that this is only an amount corresponding to half of the share capital (and not the actual amount of share capital), which, to that extent, does not determine that LCR tokens are representative of the same.
Additional information:
With the central objective of promoting innovation and mitigating the risks associated with innovation, on September 24, the European Commission adopted the European financial digitization package – “digital finance package” – which includes two legislative proposals on crypto-assets, which have not yet entered into force but will impact the European regulatory framework. We refer to:
1. Legislative proposal on the market in crypto-assets (market in crypto-assets act – MiCA)
The proposal aims to provide legal certainty for crypto-assets not covered by European Union financial services legislation, applying to crypto-assets that are not financial instruments or any other instrument regulated by European Union financial legislation (namely, electronic money, securitization positions, funds, deposits, insurance products, pension products, and social security schemes). .
The proposal establishes a set of rules for initial coin offerings and for the provision of cryptoasset services (e.g., custody and operation of trading platforms).
Prudential requirements, organizational requirements, duties to safeguard client funds and prevent conflicts of interest, and duties to handle client complaints are established for service providers.
Service providers must, in particular, appoint members of the management bodies who are suitable, knowledgeable, and experienced to perform their duties, They must have robust internal controls, risk assessment mechanisms, and adequate systems and procedures to ensure the integrity and confidentiality of the information received. They must have adequate mechanisms in place to keep records of all transactions and have systems in place to detect possible market abuse by clients.
Service providers must also provide their clients with clear, accurate, and non-misleading information, warn their clients about the risks associated with crypto-assets, and make their pricing policies public.
Rules are also created for the issuance of “stablecoins,” including in cases where they constitute electronic money.
On November 24, 2021, the Council of the European Union reached an agreement, adopting a common position, to move forward with negotiations with the European Parliament on MiCA.
2. Legislative proposal on a pilot regime for the application of distributed ledger technologies in market structures (DLT Pilot Regime)
The proposal aims to allow market structures using distributed ledger technologies to be temporarily exempt from certain specific requirements under European Union financial legislation that could otherwise prevent them from developing solutions for the trading and settlement of transactions in crypto-assets that qualify as financial instruments.
This is an optional regime, which does not prevent market structures from using DLT in their trading and post-trading activities under EU financial legislation. The DLT Pilot Regime also allows ESMA and competent authorities to gain experience on the specific opportunities and risks of distributed ledger technologies and crypto-assets that qualify as financial instruments.
Access to the DLT Pilot Regime is not limited to established operators (authorized as operators of multilateral trading facilities or as securities depositories), but extends to new operators.
On December 21, 2021, the ambassadors of the Member States of the European Union approved the provisional political agreement reached on November 24, 2021, between the Presidency of the Council and the negotiators of the European Parliament on the DLT Pilot Regime. It still needs to be formally adopted before it can be published in the Official Journal of the European Union and enter into force.
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