ASIC releases guidance for initial coin offerings

ICOs subject to Corporations Act in some circumstances, ASIC says

The Australian Securities and Investments Commission (ASIC) today released guidance for businesses that undertake initial coin offerings (ICOs).

ICOs are an increasingly popular way for cryptocurrency-based startups to raise funds.

“ASIC recognises that ICOs have the potential to make an important contribution to the options available to businesses to raise funds and to investment options available to investors,” the new guidance states.

“An ICO must be conducted in a manner that promotes investor trust and confidence, and complies with the relevant laws.”

Whether the Corporations Act applies to a particular ICO will vary, according to ASIC.

“In Australia, the legal status of an ICO is dependent of the circumstances of the ICO, such as how the ICO is structured and operated, and the rights attached to the coin (or token) offered through the ICO,” the guidance states.

“In some cases, the ICO will only be subject to the general law and the Australian consumer laws regarding the offer of services or products. In other cases, the ICO may be subject to the Corporations Act.”

In some cases, an ICO could be a managed investment scheme, an offer of shares, an offer of a derivative, or a non-cash payment facility according to ASIC.

“We want to ensure innovative firms understand the regulatory framework they may be operating under and ensure they meet any obligations they may have when raising funds in Australia,” ASIC commissioner John Price said.

“ICOs are highly speculative investments, are mostly unregulated and the chance of losing your investment is high,” Price said. “Consumers should understand the risks involved, including the potential for these products to be scams, before investing.”

In March, ASIC released guidance on the use of blockchain-style distributed ledger technology (DLT). The blockchain is the distributed ledger that underpins Bitcoin and similar cryptocurrencies.

ASIC said at the time that it believes the use of DLT in Australia will grow exponentially.

“To date, we have seen DLT used in foreign exchange remittance payments, securities settlement systems, debt issuance programs and digital identity initiatives,” ASIC’s DLT guidance states.

“Internationally, DLT is being deployed in an even wider range of use cases including arrangements to support private securities transactions, interbank payments, and netting services for repo and foreign currency markets.”

A range of major Australian businesses are investing in DLT. Earlier this week the ASX revealed it is on track to make a decision in December as to whether it will replace its CHESS post-trade system with a DLT-based platform.

“We are increasingly confident that this technology will help simplify how our marketplace works and should unlock a new era of efficiency and innovation,” chairperson Rick Holliday-Smith told the ASX AGM.

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Tags distributed ledger technologyinitial coin offerings (ICOs)cryptocurrencyBlockchaincryptocurrenciesBitcoin

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