Italy: The ICO For Legal Practitioners

Last Updated: 31 July 2018
Article by Francesca Ferrari and Claudia Caluori

Eptalex JGlegal contributed to an article concerning one of the countless, current and most interesting applications of block-chain technology: the Initial Coin Offering ("ICO").

To know more about 1) the ICO procedure, 2) the legal framework of the token (in Italy), and 3) the Swiss Financial Market Supervisory Authority's ("FINMA") guidelines, check the article in Italian ( or in English

One of the most interesting uses of block-chain is at the moment is the Initial Coin Offerings (a name that evidently wants to recall the Initial Public Offerings): a digital way of collecting financial resources through the issuance of the so-called "digital tokens"


Block-chain technology and its countless applications are a topic that is encountered on a daily basis nowadays.

One of the most interesting uses of block-chain is at the moment is the Initial Coin Offerings (a name that evidently wants to recall the Initial Public Offerings): a digital way of collecting financial resources through the issuance of the so-called "digital tokens", sets of information registered on block-chain, through which property rights may be transferred against payment in crypto-currencies. The ICOs (also known as crypto-crowd-funding) is still a non-regulated subject, and therefore presents numerous challenges both for the interpreters and for the legal operators who deal with it.

  1. The ICO procedure

The entity wishing to issue tokens to finance its project through an ICO should publish a so-called white paper. It is a document that aims to describe the project and the technical aspects of the product to potential investors, and to provide an indication of the sums needed, the timing, the type of crypto-currency given with the token, the amount of tokens that will be retained by the issuer (normally between 10% and 50%), as well as the list of services that will be available against the tokens. It is clear how much necessary the white paper is to convince potential investors of the credibility and all the makings of the issuer's project.

Equally important is to provide guarantees for investors, through the creation of the c.d. "Escrow-wallet" where the funds are deposited until the ICO ends. In case the ICO has not achieved the expected results, the issuer will return the amounts paid, where if it was successful, the tokens are issued and distributed. Providing a transparent procedure to return the funds is evidently another fundamental step.

The offer of tokens to the public is then carried out for a fixed period of time and usually in two phases: a presale and a sale. On the one hand, during the presale, potential subscribers of tokens will be offered favorable treatment with regard to the subscription price or services related to the token; the value of the subscribed tokens will then be linked to the performance of the issuer's project.

On the other hand, from a contractual point of view, the relationship between the subscriber and the issuer will generally be governed by a Token Sale Agreement, which often involves a sale of future assets.

  1. Legal framework of the token

Framing the token legally depends on what rights the token itself grants. It is therefore fundamental the contribution of the legal operator in designing the token in a way that avoid to make it fall under the regulation of financial products. In fact the token most frequently requested to the issuer is the c.d. "utility token", which exclusively grants the right to purchase goods or services made available by the issuer on more favorable terms with respect to future users of the asset, excluding not only the financial features and applicability of the related legislation, but also the banking ones, which would arise if the token were a crypto-currency, i.e. a generic payment instrument.

On this point the Italian Consolidated Law on Finance (Testo Unico della Finanza, also known as "TUF"), pursuant to Legislative Decree no. 24 February 1998, n. 58 (and subsequent amendments) article 1, paragraph 1, defines as financial products "the financial instruments and any other form of investment of a financial nature" and specifies that "bank or postal deposits not represented by financial instrument are not financial products". It is therefore necessary to design the token in such a way that it cannot be classified among the other forms of investment of a financial nature, in light of the fact that according to paragraph 2 of article 1 of the TUF "financial instrument means any instrument reported in Section C of the 'Annex I of the TUF "(in which in any case the crypto-currencies are not included). Furthermore, also the European Court of Justice, with the decision C-264/14 on 22 October 2015, seemed to exclude any comparison between crypto-currencies and financial instruments. This ruling underlines precisely the how the virtual currency exchange operations do not fall within the scope of the exemptions provided of the European Council (so-called "VAT Directive"), where paragraph f) provides with the exemption for financial products.

The advantages of investing in an ICO procedure are numerous; however if from a certain perspective it is possible to earn large sums by investing a few hundred euros, from another point of view in these cases the risk of fraud is very high and, fortunately, there is a widespread skepticism towards these tools when not managed in a professional way.

Finally, many startups choose to conduct the ICO in Switzerland taking advantage of the indications given by FINMA, the Swiss Financial Market Supervisory Authority, which has issued a communication and guidelines to clarify some issues related to ICOs, reducing therefore the risks of the operation.

  1. The FINMA's guidelines

The FINMA's guidelines can provide useful indications also for Italian ICOs, subdividing the possible tokens into three categories:

– Payment token: where the token is intended to function as a means of payment and can already be transferred; compliance with anti-money laundering regulations is required;

– Utility tokens: intended as securities only if their sole purpose is to confer digital access rights to an application or service;

– Assets tokens: assets that are comparable to bonds or derivative financial instruments, which are therefore treated as transferable securities and subject to financial discipline.

According to FINMA, therefore, the individual token must be regarded according to their functions and to a classification that can certainly be configured also in Italy (as well as other countries).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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