In a move that aligns with Latvian pro-investment and digital innovation sentiments, lawmakers have amended the country’s securities law (FITL), which could potentially benefit the STO industry at large. The adjustments made through the Latvian prospectus exception make it much easier for small and medium companies (SMEs) to raise capital via a prospectus exempt public offering. Such prospectus exemption fits well within the tokenization framework, where issued equity can benefit from increased liquidity in the form of tokenized assets.
The Latvian prospectus exception showcases a forward-looking stance in regards to innovative financial tools, allowing for direct access of investors in primary and secondary markets for small capital investments. It also demonstrates a strengthening of the country’s capital market positioning within the EU.
Previously, companies were able to raise capital from 100,000 EUR to 5,000,000 EUR subject to a simplified prospectus. While this prospectus exception did spur some business, the task was cumbersome. In all instances, companies needed to hire a broker or a bank and a host of other third-party organizations just to accomplish their crowdfunding ventures. As a consequence, with all the costs incurred, a fundraise of, say, 1,000,000 EUR left the company with more expenses than benefits.
Latvian Prospectus Exception
Latvia’s latest prospectus exception is likely to up the amount of tokenized securities a firm can issue before filing a prospectus with regulators for larger issuances. The new rules allow prospectus-free issuance up to 1,000,000 EUR, and between 1,000,000 EUR and 8,000,000, a simplified offering document must be prepared according to the rules of the regulator. Whereas securities offering below 3,000,000 EUR can be done without the involvement of a broker or a bank. Importantly, this last exception is only available to small or medium businesses. Amazingly, these firms would have the ability to host one or several offerings under the total amount of 3,000,000 EUR every 36 months.
Notably, the prospectus exception lists that the issuance offers either equity or debt-based securities. Tokenized equity and debt provide new liquidity in the market. As such, new markets continue to form around these unique financial instruments. Discussing the prospectus exception, Liza Aizupiete, Managing Director of Fintelum stated
“In a bid to help startup and real-estate sectors access better funding options, the present changes to the securities law are making Latvia a more attractive EU member state for capital raising. The present regulatory environment allows Fintelum to serve small and medium-sized enterprises raising up to EUR 3 million, within 36 months, with lower capital markets entry barriers. Investors will be able to invest in fiat or cryptocurrencies and access fractionalized ownership of dividend-yielding projects, open to retail investors. With Fintelum tokenization and compliance tools, fractional owners of securities, or utility tokens, will be able to swap interest in projects using our peer-to-peer secondary market and thus increase liquidity in typically illiquid assets. For example, if you own a part of a company that owns either a real estate or represents a commercial company, you can digitally buy or sell these fractions among existing shareholders, or you can seek new investors interested in the project.”
Latvian Crypto Sector
Latvia continues to be one of the top pro-crypto countries in the EU. Latvia has always had an active Bitcoin mining sector. As such, the country has seen incredible adoption. For example, in 2014 airBaltic became the first airline in the world to sell tickets for Bitcoin. Notably, Latvia is home to one of the world’s leading full-service blockchain technology companies – Bitfury.
Realizing how powerful blockchain technology really was, the Latvian State Revenue Service announced that it would employ blockchain tech to combat tax evasion back in February 2019. Additionally, these regulators stated publicly that blockchain technology creates new business opportunities.
Latvia Prospectus Exception
The Latvian prospectus exception is sure to spur significant growth within the country’s STO sector. The country has a lot of momentum in the industry and this latest legislation should make Latvia an even more attractive country for any blockchain startups seeking friendly shores. For now, many of the regulators of the world could learn a thing or two from Latvia.
Germany – Crypto Custody License Receives Push-back from Banks
Germany’s crypto custody license was supposed to give blockchain-based firms access to the basic banking essentials. Despite this fact, stories continue to emerge of companies finding it very difficult to acquire banking services such as checking accounts. A closer look reveals some of the reasons why the German banking industry is still pushing back against crypto adoption.
Confusion, FUD – Crypto Custody License
One of the main reasons German banks are hesitating to provide crypto-related platforms service boils down to a lack of clarity in the space. Both crypto firms and institutions have uncertainties and concerns related to applying for the crypto custody license. Until Germany’s Federal Financial Supervisory Authority (BaFin) clarifies these issues, such as what type of activities would qualify as crypto custody, banks will still error on the side of caution.
For example, there is a lack of transparency around crypto exchange operations. Banks are curious about how functionalities such as staking and lockup periods could affect the custodial license of an exchange. Currently, the law states that any crypto firm with access to customer’s private keys is a custodian.
Crypto Custody License
Additionally, in March, BaFin released a guidance stating that tokens originating from security token offerings (STOs) can be custodied by a crypto custodian without the use of a depository bank. Shortly thereafter, regulators issued additional guidelines regarding the management, IT, and security requirements set for crypto-related businesses seeking licensing. Importantly, BaFin states it intends to create more rules focused on operational risks in the near future.
Stifling Bank Participation
This “to-be-announced” approach is enough to keep Germany’s major banking institutions on the sidelines for now. In fact, only tech-focused service providers contributed to the space so far. Next-generation banks, such as SolarisBank, continue to slowly propagate the sector. Solarisbank opened a location in Germany in December 2019.
Lack of Banking
In a recent interview, Matthias Winter, partner at Eversheds Sutherland Germany discussed how the lack of banking is a real issue facing the market. He explained that there is “no legal reason why” banks are hesitating to take on crypto clients. Winter described “confusion” as the main hurdle the industry needs to overcome. Additionally, he spoke on how banks function on a risk versus reward premises and opening a checking account for crypto-firm leaves them exposed to future regulatory changes
Notably, Winter also spoke on how the changes could affect the market. If, or rather when, BaFin clarifies these inconsistencies, there will be a gold rush to the market. In essence, banks would need to acquire crypto custody firms to gain access to the technology as fast as possible.
Crypto Storage Deutschland GMBH
To find examples of how this market confusion wreaks havoc on the industry, you need not look any further than Crypto Storage Deutschland GMBH. This firm underwent a real struggle when they decided to open a branch in Germany to take advantage of the new regulations. Executives went to no less than 15 different banks before they were able to get a basic checking account.
Discussing the tribulations, Stijn Vander Straeten, CEO of Crypto Storage AG cited a plethora of difficulties his firm encountered. Straeten described a scenario where you are up against the institutional banking arm. He explained that crypto companies aren’t “making them money by asking for checking accounts“, and as such, they are not a priority by any means.
White-Label Solution for Banks
Notably, Crypto Storage AG recognizes the need to secure digital assets. The firm currently offers a white-label solution for banks that want to offer the services to their clientele without taking on the risks associated with emerging markets.
Germany Moves Forward – Crypto Custody License
German regulators appear to be moving, albeit slowly, closer to the digitization of the markets. Every day that passes signals more growth and development in the country’s blockchain sector. Hopefully, in the coming months, BaFin provides banks with the specifics they need to give firms access to banking essentials. If not, Germany risks falling behind in the global race to tokenization.
Lawsuits Goes After Some of the Largest Names in Crypto
In what appears to be a broad swipe at the crypto sector this week, multiple lawsuits filed with the Southern District of New York claim wrongdoing against a myriad of blockchain-based firms. The class-action lawsuits allege wrongdoing on the part of crypto heavyweights such as Binance, Block.one, BitMEX, KayDex, BProtocol, Status and TRON Foundation, just to name a few.
According to court documents, the latest suit lists three plaintiffs – Chase Williams, Alexander Clifford, and Eric Lee. Interestingly, Roche Freedman is the firm heading the lawsuit. You may recognize the name from their recent lawsuits against Bitfinex and Tether. Additionally, they led the cases against Craig Wright and Bitfinex in the past.
Crypto Lawsuits – Details
The new lawsuit lists eleven companies in violation of regulations. These companies span the entire crypto sector. Tokens such as ELF, CVC, TRX, TOMO, SNT, and others are listed for their use of IEO and ICO models in the past. The suit claims these tokens are unregistered securities. As such, the token made agreements with exchanges in violation of Section 5 of the Exchange Act.
The violations also extend to the named exchanges. The lawsuit lists KuCoin, Block.one, Quantstamp, Civic, and Binance as exchanges who sold unregistered tokens. Plaintiffs argue that these exchanges didn’t possess the required broker-dealer license in the U.S. Importantly, the plaintiffs believe that the SEC clarified in the past that the listed tokens are securities.
The suit also lists several crypto stars specifically. For example, Changpeng Zhao (CEO Binance), Vinny Lingham (CEO Civic), Justin Sun (TRON), Brendan Blumer (Block.one) and Dan Larimer (EOS) are all named in the suit.
The allegations are not trivial, For example, the trio argues that tokens such as TRX deceived investors about their purpose and level of decentralization. The suit claims that the centralization was “not apparent at that time.” It was only after the passage of time that investors gained the necessary insight to determine this. The suit states that there was a clear delay before the “issuer’s intent, the process of management, and success in allowing decentralization to arise” become apparent. In this way, the allegations state investors were “misled into believing that TRX was something other than security when it was a security.”
Taking on the Crypto Industry
This case appears to be an attack on some of the most important firms, exchanges, tokens, and people in the crypto sector. The large scope of allegations and the global nature of the case will cause delays along the way. Consequently, it could be a while before this trial makes its way to the courtroom.
Lawsuits for the Stars
It’s hard to imagine a scenario in which the plaintiffs win this case. They would need to establish numerous precedents during the trial. These new rulings could stifle innovation in the US blockchain sector for years to come. As such, you can expect to see a measured response to this lawsuit in the coming weeks.
STOMarket Adds Mt Pelerin – MPS Token
This week, the research and analytics firm, the STOMarket announced the addition of the first international security token to its tracker. Importantly, researches chose the Swiss tokenization platform, Mt Pelerin Group as the project to receive this honor. Now, potential, and current MPS token investors can monitor market developments easier than ever before.
Currently, the STOMarket hosts the largest repository of live security token data available globally. The firm has held on to this title since it first entered the market in 2018. Importantly, the group was the first data aggregator in the digital securities industry. As such, STOMarket researchers gathered primary offering data for over 300 STOs to date.
Mt Pelerin Group SA Tokenized Shares
The decision to list MPS tokens makes sense for a number of reasons. Primarily, the Mt Pelerin Group SA is one of the first tokenized shares to provide direct and full ownership to token holders. This strategy differs greatly from companies that utilize tokens simply as a form of tethered ownership rights. In this instance, the token is the actual share.
As part of the strategy, the Mt Pelerin Group tokenized its 2018 cap table. Interestingly, 5% of these tokenized shares were sold at a public offering. Importantly, no US investors were permitted to participate in the event. Notably, the group chose to make MPS tokens ERC-20 compliant.
Currently, Ethereum host the largest number of security tokens in the market. As such, ERC-20 compliant tokens enjoy added interoperability when compared to other protocols in the space. This interoperability comes in the form of more wallets, Dapps, and platform options. Already, the MPS token trades on the Uniswap Decentralized Exchange.
Mt Pelerin Joins the Ranks – STOMarket
Discussing the important milestone, Arnaud Salomon, CEO of Mt Pelerin stated that his team was “thrilled” to see the MPS token listed on stomarket.com. He described how this decision places his project in line with other “industry trailblazers.” Lastly, he described how the addition allows investors and analysts to monitor this unique token’s growth.
Not surprisingly, the STOMarket continues to expand its role in the market. For example, in 2019, the firm launched support for secondary trading transactions. Immediately, investors gained access to important data on the six largest security tokens in the market. Since then, the group has added multiple tokens. Today, the firm is building advanced support for hourly security token pricing, trading volume, and market cap updates internationally.
As part of the STOMarket’s early response strategy, the company works closely with security token issuance platforms and exchanges. Notably, the firm has data partnerships with MERJ, BlockStation, Tokenise, just to name a few. Discussing the important role the company plays, Marko M. Hafez, Co-Founder and CEO of Blockstation explained how researchers took the “initiative to centralize and publicize STO and Tokenized IPO listing.”
STO Data Access
Providing the STO market with live trading data continues to be a critical role in the space. Thankfully, the STOMarket makes it easy for anyone to monitor and share data on developments in the industry. You can expect to see these researchers play a more pivotal role in the market as STO adoption continues to expand in the coming months.
- Multiple Canadian Securities Regulators Warn Against Halifax & Associates
- Germany – Crypto Custody License Receives Push-back from Banks
- Central Bank of South Korea to Host 22mth Pilot for Potential CBDC
- Japanese Government Introduces New STO Regulations
- Lawsuits Goes After Some of the Largest Names in Crypto