The European commission intends to further develop and promote the free flow of capital within the Capital Markets Union. Numerus efforts have been made – and some have even been partially implemented – to reach this goal since 2015. The EU Prospectus regulation for example creates a uniform European framework for the creation and approval of security prospectuses for security issuances on the European capital markets. The requirements of security prospectuses regarding the content as well as the approval process have been harmonized by the new regulation. Furthermore, issuers of securities have the option to utilize a prospectus that has been approved in one European member state for the first public offering of a security via EU-Passporting in another member state for the same purpose. The regulation is obviously also applicable for the first public offering of dematerialized securities which are represented in the form of security tokens.



Issuers of security tokens are therefore always confronted with the question to which of the competent European authorities they should submit their security prospectus for approval. Issuers are generally speaking free to decide this matter. They can choose between the competent authority of their home state or any other supervisory capital markets authority within the European Union. Furthermore, security prospectuses can also be approved by supervisory authorities from one of the member states of the European Economic Area (EAA) and then be repassported via EU-passporting to other European countries in order to offer the security tokens to investors in the target country. But which supervisory authority is the right choice for STO issuers? Which criteria should be considered by issuers in the selection process?



The legal statues regarding the content as well as the approval and deposit process in all member states of the EEA are the same since the EU prospectus regulation entered into force. The European Securities and Market Authority (ESMA) published twelve guidelines on how the regulation has to be interpreted. These guidelines deal e.g. with the presentation of the risks in security prospectuses and they have to be observed by all European supervisory authorities during the approval process. Therefore, the selection of the right supervisory authority should be decided by criteria which take the actual project in account and not by legal criteria. It is probably cost efficient to apply for approval in the EEA member state in which the security tokens are offered, if the tokens in question are only offered to investors in this country. This way, the costs for an EU-passporting procedure and a translation of the prospectus summary into the official language of the target country, even though most will accept an English version – can be avoided. The widely shared supposition that the approval process for prospectuses takes longer in different states cannot be confirmed. The decisive factors for the question of how long the approval process takes are the complexity of the project and the diligence that the issuer and his advisers applied when creating the prospectus. The selection of a supervisory authority that has a certain amount of experience with the approval process of similar projects is however advisable when applying for approval of a security prospectus for security tokens.


Attorney Lutz Auffenberg, LL.M. (London)





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