Having raised over $2 billion so far in 2017, ICOs have been quick to attract attention from financial regulators worldwide. Regulators in China and this week Macau have implemented total bans on the practice, while in the US regulators at the SEC declared that some ICOs in fact come under securities rules and regulations.
The latest financial regulator to weigh in on ICOs is the Australian Securities and Investments Commission (ASIC), who have this week published guidelines for companies intending on offering ICOs.
According to the guidelines published on the ASIC website, ICOs will be subjected to different regulatory requirements depending on their structure, with some to be regulated under the Corporations Act, and others will be regulated under existing consumer laws.
ICOs that fall under the regulation of the Corporations Act would provide investors with a layer of protection against the risks associated with buying the token issue, thus the distinction will be regarded as crucial in determining the overall risk profile of a given token issue.
According to the regulator, the distinction depends on whether an ICO falls within the requirements of managed investment schemes, or MISs.
“In some cases, ICO issuers may frame the entitlements received by contributors as a receipt of a purchased service. However, if the value of the digital coins acquired is affected by the pooling of funds from contributors or use of those funds under the arrangement, then the ICO is likely to fall within the requirements relating to MISs. This is often the case if what is offered through the ICO has the attributes of an investment.”
Labelling an ICO a MIS, or any other type of securities instrument would create a range of compliance obligations and requirements for issuing companies, and may even require companies to obtain a prior licence before selling their tokens to the public.
However, if token sales are deemed not to be financial products, John Price, the ASIC Commissioner has some advice for investors: “investors will need to closely consider the ICO documentation as the investor protection regime under the Corporations Act will not apply.”
The guidelines from ASIC have been welcomed, and are in stark contrast to the more restrictive approach of China, for example, where ICOs have been effectively outlawed entirely.
Recognising the benefits of flexibility in raising capital through ICOs, the ASIC guidelines should provide some clarification for issuing companies, in what is fast becoming a global regulatory minefield.