The Estonian Financial Supervisory Authority (EFSA) is of opinion that tokens, depending on their structure, might be considered as securities according to the definition set forth in the current Securities Market Act (SMA) as well as in the Law of Obligations Act (LOA). In assessing whether or not securities laws apply, the EFSA states that substance should be considered over form.
Every ICO is unique and should be assessed on its own characteristics. The EFSA explains that tokens which give investors certain rights in the issuer company or whose value is tied to the future profits or success of a business are likely to be considered securities in the meaning of § 2 of the SMA. Therefore, the offering of such tokens may constitute as the issue of securities and, depending on its exact nature, be governed by the rules that of public offering as prescribed in § 12 of the SMA. That being the case, it is required to register a respective prospectus in the EFSA. Currently, it is not mandatory for the company to register the ICO prospectus with EFSA if utility tokens are launched. However, ICOs regarding security tokens are mostly seen as similar to IPOs and, therefore, the prospectus of such offering shall be registered with the EFSA.
As regards to ICOs encompassing the offering of instruments qualified as securities, it is important to note that the entities facilitating such ICOs or secondary trading of such tokens may be considered as providing investment services as stipulated in § 43 of the SMA. In particular, by organizing such an offer or issuing tokens or bringing together the interests for acquisition and transfer of tokens under uniform conditions. The abovementioned services may be provided as a permanent activity only by authorized entities.
The EFSA notes that ICOs may also be governed by the Credit Institutions Act (CIA). This might be in the case where the main activity of the business is to provide loans on its own name and account and such activity is being financed through the repayable funds received from the public in the form of an ICO.
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