Breaking Down the Jargon: The Impact of Regulatory Licences on Blockchain
Licences can be confusing. Here we take a look at just what TokenMarket's individual licences mean for the business, as well as why they set us apart from others in the industry
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At TokenMarket, our mission is to provide all types of investors access to the next generation of rapid growth companies at a much earlier stage compared to traditional financing models. Transparency for us, like blockchain, is one of our founding principles. As of late, we realised there is a lot of white noise when it comes to regulation in the digital asset space. “We are regulated by this jurisdiction with this license which means we are able to…” It is confusing, to say the least.
This comprehensive guide is designed to outline why TokenMarket is pursuing licenses in these various jurisdictions, and in what way they help achieve our mission within the blockchain ecosystem. Of course, there are various different licenses in each jurisdiction so we have described each by the country for ease.
The ICO boom in 2016 and 2017 brought a lot of bad actors into the crypto space as they tried to financially capitalise quickly. As a result country’s like Gibraltar wanted to provide trusted third party verification of these companies. This, in turn, allowed users to have an added layer of trust to businesses which had been rigorously checked and verified.
The result of this need within Gibraltar is the Distributed Ledger Technology (DLT) Licence which was the earliest “blockchain” licence available in Europe. TokenMarket Ltd (TML) is incorporated in Gibraltar and was one of the first businesses globally to have received "In-Principle" approval as a DLT provider.
This licence allows TokenMarket to make use of DLT for storing or transmitting value belonging to others but more importantly allows TokenMarket to ensure it is being held to a higher standard than others on the market.
You can read more about the nine principles here
TokenMarket Capital Limited (TMCL), a fully owned subsidiary of TokenMarket Limited (Gibraltar), has recently been granted an “Innovation Testing License” (ITL) by the Dubai Financial Services Authority (DFSA).
The ITL allows TokenMarket Capital Limited to operate as a Category 4 Advisor/Arranger for issuers of/investors in Security Token Offers in or from the Dubai International Financial Centre (DIFC) for the duration of the ITL. TokenMarket expects the ITL restrictions to be lifted following “graduation” from the ITL. This is just the first step of our two-phase entry into the United Arab Emirates and the region.
The second, and main phase is to establish a DFSA-licensed and regulated Authorized Market Institution in order to operate a Tokenized Securities Exchange in or from the DIFC (the “Exchange”). The proposed Exchange remains the cornerstone of TokenMarket Group’s strategy and an integral part of its overall business plan. Therefore, we remain fully committed to working with the DFSA to obtain the necessary licenses and authorizations in order to achieve the plan we set out for the DIFC.
Given the recent and positive developments in the TokenMarket Group, we can now allocate additional resources to this project (as necessary) and hire dedicated teams to manage the Exchange’s license application process and to efficiently implement our strategy for the United Arab Emirates. Our firm target is to submit our final license application for the Exchange no later than September 30th, 2019.
TokenMarket Technologies Ltd (TMT), the UK wholly owned subsidiary of TokenMarket Ltd (TML), was accepted into the Financial Conduct Authority’s (FCA) Sandbox, allowing TokenMarket to test its equity crowdfunding platform via tokenised securities. TMT will have a restricted licence to arrange transactions in securities for its first security token offering (STO) and will aim to get the restrictions lifted.
TokenMarket is allowed to raise up to £2 million whilst in the FCA Sandbox and the eventually unrestrictedly authorised TokenMarket Platform will allow issuers to raise up to €8 million without a prospectus by selling securities to investors including to “Everyday Investors”. Broadly, anyone can become an Everyday Investor. The Investor just needs to agree, by self-certification, to invest no more than 10% of their assets into company shares, bonds, funds or any other securities which are not listed or sold on a stock exchange.
This license, in short, allows TokenMarket to issue securities in a tokenised form and gives investors the ability to purchase equity in startups via blockchain. Thus, the benefits of blockchain such as instant settlement, ownership of assets and, once the third-party infrastructure for trading comes to fruition, 24/7 markets, can be matched with protections that owning equity in a business and regulated markets bring.
In a similar approach taken in Dubai, TokenMarket Limited are looking to secure two licences for trading and issuing of tokenised securities. The Malta licences are paired with the UK to allow the trading of tokenised securities across Europe. In Malta, however, there is one licence for the trading of utility tokens and a second for the trading of security tokens.
TokenMarket Ltd (TMM), the Maltese wholly owned subsidiary of the Gibraltan TokenMarket Ltd (TML), has been grandfathered as a Class 4 VFA Service Provider under the Virtual Financial Assets Act of Malta under which TMM has launched its Virtual Financial Assets (VFA), for example, utility token, exchange. TokenMarket will now submit its application for a full licence.
The VFA Service Provider licence does not allow TokenMarket to list securities on its exchange. TokenMarket is in the process of preparing its application for a Markets in Financial Instruments Directive (MiFID) a broker/dealer licence and a multilateral trading facility in Malta, which will allow it to launch a security token exchange using the technology of its VFA exchange.
In a market as quick moving as blockchain and fin-tech, regulation can be frustrating in its relatively slow speed. This is why TokenMarket has been working within several jurisdictions to marry the two for over 18 months now.
Ultimately this will be of benefit to our users and to the blockchain ecosystem, ensuring that protection and trust can be had from every player in the ecosystem.
Understanding the benefits of regulation and working alongside the regulatory bodies, rather than ignoring them, will only improve the ecosystem for all the players in this market.