On what legal basis InvestBay operates

InvestBay operates on the principle of offering tokens that are indirectly linked to ownership of a certain share in a given property. The "tokenisation" of such shares has been talked about for at least 10 years, abroad there are several such platforms, and InvestBay is finally opening up the option of micro-investing for Czech investors too. On the other hand, it must be said that most ideas for this system ended already in the preparatory phase, and under the weight of complex European and national regulation such projects were abandoned.

The technical solution as such therefore seems relatively simple compared with resolving the legal and regulatory questions. On this project, we collaborated most with the law firm Noerr s.r.o.

The following legal regulations are relevant for the issuance of InvestBay tokens and trading in them:

• Act No. 256/2004 Coll., on Capital Market Undertakings ("the Capital Market Act"),
• Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market ("the Prospectus Regulation"),
• Act No. 240/2013 Coll., on Investment Companies and Investment Funds ("the Investment Funds Act"),
• Act No. 21/1992 Coll., on Banks ("the Banking Act").

On the basis of a legal analysis, we arrived at a solution that involves issuing "UNIT" tokens for individual properties, through which InvestBay offers the sale, purchase, management and maintenance of the given property. The Polygon blockchain network is used for recording such UNITs, and the offering and sale can be carried out on the online InvestBay platform. InvestBay currently operates the sale itself on the basis of a trade licence for the unregulated trade field "provision of services connected with a virtual asset". In the land register, InvestBay is registered as the owner, and the rights of the token holders are protected by a lien on the relevant property and by the institution of an independent lien agent. Token holders have the right to a share of the income from renting and/or selling the properties, and they also participate in decisions about how the properties are handled by means of a voting tool. The tokens will be transferable and can be traded on the secondary market, including the InvestBay platform and other authorised token exchanges.

In nearly a year of examining the situation, we also focused on alternative interpretations and ways of approaching the project:

Capital market regulation

According to the current public position of the CNB, crypto-assets are not investment securities, since they are neither paper securities nor book-entry securities in a central or separate register under Czech law. InvestBay tokens are therefore not investment securities under the Capital Market Act.

The Prospectus Regulation

Even if InvestBay tokens were investment securities, the Prospectus Regulation would not apply to them, since the total amount of the public offering of tokens did not exceed EUR 1,000,000 over the course of 12 months. A prospectus would need to be published only if this amount were exceeded or if the qualification of crypto-assets changed to (book-entry) securities (which, according to the CNB, they currently are not, see the previous point).

Regulation of investment services

InvestBay's activity does not constitute the provision of investment services for the benefit of third parties (InvestBay issues and offers its own tokens) and therefore does not require authorisation under the Capital Market Act.

The Investment Funds Regulation

InvestBay's activity does not constitute an unauthorised collective investment fund and does not require authorisation under the Investment Funds Act. For a project to qualify as an unauthorised fund, it must meet all of its features, including the feature of joint investing without involving investors in day-to-day decision-making. InvestBay, by contrast, allows investors and actively encourages them to participate actively in decisions on fundamental questions of how the relevant property is handled.

Banking regulation

InvestBay's activity does not constitute accepting deposits from the public, and InvestBay therefore does not constitute a bank without a licence (an illegal bank) and does not require a banking licence under the Banking Act.