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The initiative includes a competition law sustainability “sandbox” in which market participants could team up to work on sustainable business projects.

By David Little and Pierre Bichet

The Greek Competition Authority (HCC) has announced a public consultation on how competition law rules might be adapted to promote more sustainable business practices. The HCC published a Staff Discussion Paper and held a digital conference to launch the consultation.

The HCC’s exploratory proposals outline a number of novel concepts, including: (1) the creation of a competition law sustainability “sandbox” in which market participants could team up to work on sustainable business projects with some measure of protection from competition rules; and (2) the establishment of an “Advice Unit” comprising experts from different regulatory authorities who could provide informal advice on sustainability-related initiatives. The proposals also envisage the publication of general guidelines defining the contours of legitimate cooperation between rivals on sustainability projects.

Swiss regulator offers assistance in navigating the regulatory framework.

By Andrew Moyle, Stuart Davis and Charlotte Collins

The Swiss Financial Market Supervisory Authority (FINMA) has published a set of guidelines, setting out how it intends to apply its financial markets legislation in the context of initial coin offerings (ICOs).

Despite the growing trend for ICOs globally, FINMA is the first national regulator to provide such helpful clarity for ICO participants, who are typically left to work out for themselves whether and how their structure fits into existing regulatory frameworks. ICOs, in which investors receive blockchain-based coins or tokens in exchange for funds, were not envisaged when many existing frameworks were developed. Further, the increasing deployment of ICOs has not given rise to ICO-specific rules and regulations in most jurisdictions, although a minority of regulators such as the Gibraltar Financial Services Commission have announced that they are creating regulatory regimes specifically targeting ICOs. Consequently, the application of current regulation and legislation to ICOs is in many cases unclear, with the legal analysis depending very much upon the way in which a particular ICO is structured.

By James Inness and Stuart Davis

Following our 7 November 2017 blog “Europe as a Hub for Initial Coin Offerings”, the European Securities and Markets Authority (ESMA) has published two statements on Initial Coin Offerings (ICOs). The statements underline ESMA’s interest in ICOs as a means to raise capital for enterprises, particularly given their rapid growth in recent months, as well as highlighting ESMA’s concerns for investor protection given the potentially high risks to investors.

Interestingly, one of the issues ESMA has focussed on is the requirement for ICO issuers intending to raise capital in the EU to comply with the EU Prospectus Directive in circumstances in which the ICO is structured as a security offering (as opposed to a non-security utility offering). ESMA acknowledges that the exemptions from the requirement to publish an approved prospectus under the EU Prospectus Directive would potentially be available to ICO issuers in the same manner as for issuers in relation to other types of securities offering, as noted in Latham’s earlier blog.

By James Inness and Stuart Davis

Initial coin offerings (ICOs) involve issuers offering virtual coins or tokens that are created and disseminated using blockchain or distributed ledger technology. Virtual coins resemble cash in a number of ways but may also afford holders additional rights, such as the ability to access the platform or software, or participate in the profits, of the issuer of the virtual coins or tokens. Post-issuance, virtual coins or tokens are tradeable on a secondary market.

Tokens as securities

The popularity of ICOs as a funding mechanism has mushroomed in 2017. In response, regulators in key financial centres around the globe have warned issuers that existing regulatory regimes for securities offerings may apply to the person(s) making or marketing ICOs. Some regulators have gone further, adopting a blanket ban on fundraising though ICOs.

By Andrew Moyle and Stuart Davis

The Project Stella report, a European Central Bank (ECB) and Bank of Japan (BOJ) joint venture, details the applicability of distributed ledger technology for financial market infrastructure. During a one-month research project, the central banks tested whether distributed ledger technology (DLT) could sustain the liquidity saving mechanisms — a system introduced in 2013 to ensure the liquidity of banking institutions — in their current real-time gross settlement systems (RTGS).

Published in September 2017, the report concluded that DLT solutions have the potential to increase the resilience and reliability of financial transactions and are scalable to meet the needs of large value payment systems, but they have not yet reached the level of maturity needed to replace the RTGS that the ECB and BOJ currently use. The findings on the scalability of DLT are important, because regulators such as ESMA and FCA have previously questioned whether DLT could be scalable enough to meet the needs of the financial market infrastructure.

By Andrew Moyle, Wenchi Hu, Simon Hawkins and Stuart Davis

Initial Coin Offerings (ICOs) involve issuers offering virtual coins or tokens that are created and disseminated using distributed ledger or blockchain technology. The capital raised from the offer will fund the development of a digital platform, software, or any other project. Holders of virtual coins or tokens may have additional rights over and above those of a cryptocurrency, such as rights to access the platform, use the software, or otherwise participate in the project. In some cases, holders may also have rights to a return on their investment, or rights to participate in a share of the returns provided by the project or by the company backing the project. Post-issuance, holders may resell virtual coins or tokens in a secondary market on virtual currency exchanges or other platforms. ICOs are typically announced on cryptocurrency forums and websites through a white paper describing the project and key terms of the ICO, subscription details, timeline, etc.

To date, an estimated 100 ICOs have raised over US$1.2 billion, with a plethora of prospective ICOs frequently reported in industry publications. In June and July this year, ICO funding surpassed that of angel and early-stage VC funding combined.

By Paul Davies, Fiona Maclean and Stuart Davis

Blockchain is more widely recognised as the underlying software technology usedVirtual Currency B - Single for the cryptocurrency Bitcoin. This technology is also being increasingly applied to alternative opportunities, including in the energy sector. In its simplest form, a blockchain is a shared, and continually reconciled, database. No central repository of the database exists and, instead it is hosted simultaneously across a network of computers or nodes. This means that each participant in the network has real-time access to a “golden source” of the data stored on the database without the need for trusted intermediaries and costly data reconciliation. Automated code-based processes called “smart contracts” can run off, interact with and update the database in a way that would not be possible without a golden source of data and real-time reconciliation. In the energy sector, this technology can be used to provide an automated transaction model with no or limited third-party intermediaries (as compared to the traditional transaction model which is multi-tiered, involving a provider, a central authority such as the National Grid and the consumer). Blockchain’s ability to track the flow of electrons on a distributed grid, for example, enables their secure and transparent trade between consumers directly. The advent of blockchain could fundamentally change the way consumers use and generate electricity.

An early adoption of blockchain in this context is TransActive Grid, a peer-to-peer distributed energy offering based in Brooklyn. TransActive Grid, amongst other things, enables consumers to buy and sell renewable energy directly to each other by utilising blockchain technology. Homes producing their own energy through solar power, can sell excess energy to neighbours. Smart meters are used to record the level of energy produced, with transactions being effected and recorded through smart contracts. There are also plans to develop an application for consumers so that any excess electricity can be traded efficiently, with consumers specifying the price they are willing to pay. This has opened up a peer-to-peer market which facilitates direct interaction between consumers and it is hoped that this will develop into a local community market for renewable energy. Grid Singularity, based in Austria, is planning to bring a similar, decentralised electricity market to developing countries, to distribute solar power.