Security token offerings : regulatory gaps in existing EU financial services regulation

Abstract

The digital revolution is unstoppable and is permeating every aspect of life. Thus, it was only a question of time before it would enter the financial realm of securities. This has created the concept of security tokens and STOs – an upshot of the rise to popularity of ICOs. Inheriting the ground-breaking qualities of DLT-based technologies, security tokens present novel regulatory challenges when compared to traditional securities. It is possible to assimilate security tokens to various EU laws, but existing regulatory gaps will debilitate the powers of the blockchain. The overhaul of the securities market is that security tokens can, inter alia, be more cost-effective and less time-consuming. These benefits mean that security tokens cannot be, for all intents and purposes, identical to their traditional counterparts. With ongoing developments, the technology to reap these benefits is already out there. Maintaining traditional regulatory frameworks is right and fitting but technological advancements call for the review of such checks and balances – not as a form of deregulation but as a means of incorporating change. The financial regulatory authority that denounces new forms of innovation as a threat to the system is a thing of the past, yet it may have certain reservations for the sake of public safety. Rather than established financial regulators trying to reinvent themselves to new technologies, it is easier for a specialised entity to take onboard the supervision of a new sector of the market that is inherently different from traditional ones. On these lines, the vision of a Digital Lab, as suggested by France’s AMF, would be to have a supranational entity to cater for STOs and other innovative technologies and collaborate with existing financial supervisory authorities.