Trading in cryptoassets generated using blockchain technology continues to raise numerous legal uncertainties. The growing popularity of this type of asset is primarily due to the increasingly widespread use of ICOs (Initial Coin Offerings), whereby the issuer issues tokens to buyers in exchange for funds. In the initial phase of the growing popularity of these ventures, the lack of specific legal regulations seemed to be a significant advantage, which primarily resulted in a lack of oversight of such activity by national regulatory authorities. However, over time, state authorities and other entities analyzing blockchain technology began to recognize the possibility of qualifying tokens within existing legal frameworks, including financial market regulations regarding trading in financial instruments, including securities. National supervisory authorities, particularly in Europe, have begun to play a significant role in assessing the applicability of legal provisions to cryptoassets, presenting, usually non-binding, positions in this regard.
The Polish Financial Supervision Authority (UKNF) has also taken an interest in the activities of entities issuing and trading cryptoassets. One of the first statements issued by the Polish regulator was a 2017 announcement, or more precisely, a warning, in which the UKNF pointed to the risk of losing funds as a result of investing in cryptoassets issued through an ICO, whose issuer subsequently failed to provide the buyer with access to specific assets or guarantee the promised rights.
Only the document of 10 December 2020 entitled "The position of the Polish Financial Supervision Authority on the issuance and trading of crypto assets" can be considered a comprehensive view of the issue in question.
The analysis of this document can be reduced to the conclusion that it does not contain any groundbreaking or new theses. Generally speaking, this position aligns with legal interpretations issued by individual European Union countries in recent years, particularly regarding the key and most controversial issue: the possibility of recognizing a given crypto asset as a financial instrument, including a security.
The Polish Financial Supervision Authority accepted the commonly accepted division of cryptoassets based on their potential legal classification, i.e. into payment, utility and investment tokens.
In the case of the first two groups, we generally won't discuss the possibility of their being subject to supervision. While payment tokens may resemble payment instruments, particularly electronic money, in most cases they are not issued with an obligation to redeem them, they do not have a fixed value, and they do not have a central issuer. However, the Polish Financial Supervision Authority (PFSA) rightly noted that if a given token meets the above characteristics, it can be classified as a payment instrument.
Utility tokens, on the other hand, are most similar to identification tokens within the meaning of Article 92115 of the Act of April 23, 1964, the Civil Code (consolidated text: Journal of Laws of 1964, No. 16, item 93, as amended). The PFSA confirms that such tokens will not be classified under any category of supervision by the Commission. They will most often incorporate entitlements to receive the issuer's goods at promotional prices or free delivery (thus resembling traditional coupons or discount vouchers). In their case, however, it is worth remembering the possibility of general liability under Article 286 of the Act of June 6, 1997, the Penal Code (consolidated text: Journal of Laws of 1997, No. 88, item 553, as amended), as well as the possibility of supervision of activities related to the issuance of hybrid tokens, i.e., those that incorporate both utility and investment entitlements.
The most widely discussed and controversial legal issue is the classification of investment tokens. By accepting the numerus clausus principle of securities, common in Polish law, the Polish Financial Supervision Authority (KNF) has led to a kind of "deadlock" in the trading of such cryptoassets. The principle adopted by the KNF states that a token issuer cannot create a new security, and on the other hand, by issuing a token, due to its technological characteristics, it is unable to meet the criteria for classifying it as a legally regulated security.
This stems, among other things, from general legal regulations specifying the written form of share certificates, subject to the possibility of their dematerialization, as defined by law. However, as the Polish Financial Supervision Authority (PFSA) pointed out, to issue shares in the form of tokens, the regulations would have to provide for the possibility of maintaining a securities depository using blockchain technology.
At present, due to the lack of such possibility, the Polish Financial Supervision Authority does not see the possibility of lawfully issuing shares, participation titles in a collective investment undertaking or other securities in the form of tokens.
Importantly, and particularly strongly in the passage where the Polish Financial Supervision Authority (PFSA) analyzes tokens similar to participation titles in collective investment undertakings, the issuance of such tokens, incorporating rights similar to securities but issued outside the official, legally permitted trading system, may be considered circumvention of financial market supervision regulations and, as such, may be sanctioned by applicable regulations. This will be particularly the case in Article 287 of the Act of 27 May 2004 on investment funds and management of alternative investment funds (consolidated text: Journal of Laws of 2004, No. 146, item 1546, as amended), which reads: whoever, without the required permit or contrary to the conditions specified in the Act, performs activities consisting in investing in securities, money market instruments or other property rights, assets of natural persons, legal persons or organizational units without legal personality, collected by way of a proposal to conclude an agreement, the subject of which is participation in this undertaking, shall be subject to a fine of up to PLN 10,000,000 and imprisonment for up to 5 years. Also important is Article 178 of the Act of 29 July 2005 on trading in financial instruments (consolidated text: Journal of Laws of 2005, No. 183, item 1538, as amended): whoever, without the required permit or authorization contained in separate provisions, or, without being authorized to do so in another manner specified in this Act, conducts activities in the field of trading in financial instruments, shall be subject to a fine of up to PLN 5,000,000.
Therefore, until the regulations change, trading participants may, in particular, issue utility tokens. Due to the above-mentioned stances of the Polish Financial Supervision Authority (PFSA), issuing investment tokens carries significant risk. Therefore, if we decide to conduct such activity, we may request an interpretation from the PFSA to minimize risk and avoid potential liability.
Thank you for reading today's post in our Technoglogy series. As Christmas approaches, we wish you all the best, lots of health, happiness, and a special time spent with your family. We also wish you prosperity and joy in the coming year of 2021. Due to the Christmas and New Year break, we invite you to our next post on January 7, 2021, which will be dedicated to the topic of copyright.
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