FinTech Belgium MeetUp on ICOs 08/03/18 - Philipp Weber - 10 Ideas on possible "Best Practice Principles" regarding ICOs

1. 8 March 2018, Philipp Weber
10 Ideas / Theses on possible "Best
Practice Principles" regarding ICOs
Please note the disclaimer on page 4 of this presentation.

2. | 2Hogan Lovells
1. Costs and high expenditure of time
The costs and the high expenditure of time to structure and implement a compliant "worldwide" ICO should not be underestimated.
Therefore, an ICO might not necessarily be the easiest and cheapest way to raise money for a Start-Up.
2. Be careful with precedent
An ICO must not be legally permissible because other ICOs have been structured the same way in the past. Only recently (from my
perspective in Europe in 2017) ICOs have come on the radar of the regulators. For example, it's being reported that the German
regulator BaFin has investigated in about 13 ICOs and has banned about 4 ICOs in 2017.
3. Regulation
Not only payment/crypto currency tokens and investment/security tokens are subject to (financial) regulation. Also utility tokens
could be subject to regulation depending on the purpose and functionality of such token; in particular in cases where the speculative
and profit-generating aspects are the predominant feature of such token. Moreover, e-commerce and consumer protection laws and
regulations might be applicable. Although there are no specific laws and regulations for ICOs, but the existing legal framework
applies to ICOs as well.
4. Whitelisting
(Financial) regulation cannot be circumvented by establishing the issuer or sponsor of an ICO in an offshore jurisdiction. What
matters first and foremost, is the question in which jurisdictions the token buyers to be addressed are located. To be on the safe side,
a country by country assessment of the legal and tax situation is unavoidable; at least if the token buyers are retail customers.
Therefore, token buyers should be "whitelisted".
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3. | 3Hogan Lovells
5. Talk to the regulator(s)
Issuers should talk to the relevant regulator(s) before launching an ICO. Entrepreneurs should be as precise as possible (incl.
presenting supporting documentation) when presenting their plans to regulator(s).
6. Risks to token buyers
ICOs and tokens should be structured in such way that the following general risks to token buyers are avoided or mitigated (see
EBA/Op/2015/03, 26 February 2015, Opinion of the European Banking Authority on lending-based crowd funding):
– Counterparty and trading risks
– Risks of fraud
– Risk of lack of transparency and misleading information
– Liquidity and volatility risks
– Legal risks
– Operational (incl. cyber security) risks
7. Communication, documentation and transparency
Any communication in the course of an ICO shall be fair, clear and not misleading and token buyers should be provided with a
transparent, comprehensive, clear, accurate and complete documentation (including, if applicable, investment strategy, investment
policy and a description of investment assets) regarding the ICO, the tokens and the secondary trading/market. Risk factors and
conflicts of interest should be disclosed in a transparent way. An appropriate post-ICO reporting to token buyers should be ensured.
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4. | 4Hogan Lovells
8. Due Diligence and cyber security
A smart contract due diligence and cyber security assessment should have been completed prior to the ICO.
9. Appropriate corporate governance
An issuer should have an appropriate corporate governance structure as well as an internal compliance and audit function. It should be
ensured that the monies collected will be spent for the purpose for which they have been collected.
10. Conflicts of interest and market abuse
A conflict of interest policy should be in place. Any risks of market abuse (including in relation to secondary trading) should be avoided
or mitigated.
Disclaimer:
This presentation is my personal opinion only. Moreover, this presentation has been prepared for general informational purposes only,
and is not intended to provide, and should not be relied on for, tax, legal or accounting advice in a particular case. You should consult your
own tax, legal and accounting advisors before engaging in any transaction, i.e. launching an ICO, participating in an ICO, or selling or
purchasing tokens.
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5. T
philipp.weber@hoganlovells.com
www.linkedin.com/in/germanlegalcounsel/
+49 69 96236 446
Philipp is an experienced corporate and M&A lawyer with a strong international expertise, particularly in the Banking, Tech, Private Equity- and Venture
Capital sector. Since his previous position as senior counsel and vice president at the corporate and regulatory legal department of a DAX-listed international
commercial bank he also advises on regulatory law as well as on complex corporate and loan portfolio transactions in the financial industry.
When working closely with his clients, Philipp is crafting pragmatic legal solutions which combine all relevant legal aspects as well as the client's economic
needs. Therefore, he becomes their reliable legal advisor and trustworthy sparring partner.
Philipp is an active member of the growing venture capital, start-up and FinTech community in Germany. With his great sense of innovative technology and
business models he successfully navigates founders and investors through all legal aspects of the full life cycle of Start-Ups, including founding, financing, share
and asset deals as well as IPOs.
Representative experience includes advising:
– BAWAG P.S.K on the acquisition of participation (together with Cerberus, JC Flowers, GoldenTree und Centaurus ) in HSH Nordbank AG
– Deutsche Bank, Commerzbank, DZ Bank, UniCredit Bank AG, the German Saving Banks Association (DSGV) and Landesbank Berlin
AG on the sale of leading German payment service provider, Concardis GmbH, to a consortium comprising Advent International and Bain Capital Private
Equity
– Commerzbank Group on M&A, Corporate Governance, Banking Regulatory, Corporate Housekeeping, Venture Capital and FinTech*
– Commerzbank AG on the sale of its international private wealth management business and Commerzbank International S.A. to Julius Bär*
– main incubator on its venture capital investments in Bilendo*, gini*, Grover*, optiopay*, retresco *, traxpay *, e-bot7, TransFICC and openasapp
– Berlin Hyp on its venture capital investment in BrickVest, a UK based real estate p2p platform
– CommerzVentures on its venture capital investments in etoro, iwoca, GetSafe und Mambu*
– NIBC on a venture capital investment in FinLeap with a portfolio of more than 10 FinTech and InsurTech Start-Ups, including Solaris Bank, Clark,
Element, Savedo, Zinsbaustein, Valendo, MoneyMap, FinReach, and BillFront
– Author of the Chapter " Digitalisierung der Bankenwelt (FinTech) " in the law -handbook "Rechtshandbuch Industrie 4.0 und Internet of
Things" (Sassenberg/Faber)
– Mentor for FinTech and Venture Capital at the Unibator of the Goethe University Frankfurt
Philipp Weber
Lawyer, Corporate/M&A, Frankfurt
*before joining Hogan Lovells International LLP