ASIC just released its information sheet on initial coin offerings (ICOs), and it looks like the new cryptocurrency fundraising fad may come under its purview.
An ICO sits somewhere between an IPO and crowd-funding, but is neither. Like an IPO, ICOs are a form of fundraising where companies issue investors with coins or tokens (instead of shares) in return for certain rights. However, more akin to crowd-funding, these coins / tokens typically give access to products, platforms or Blockchain related services, rather than voting or dividend rights.
Will they be regulated by ASIC?
It depends. The regulator will look at how the ICO is structured and operated and the rights attached to the coin offered through the ICO. ASIC has identified 4 corporations law areas that may capture an ICO:
- Managed investment schemes (MIS) - If the value of a coin is related to the management of an arrangement where, for example, people contribute assets (such as digital currency) to obtain an interest in the scheme or to be used in a common enterprise to produce financial benefits or interests in property, then it's likely your ICO is an MIS.
- Share offerings - Where the ICO is used to fund the company generally (rather than a project or product), then the coins may fall within the definition of a share. ASIC will be paying particular attention to the issuer's white paper to determine whether the rights attaching to the coin are similar to that of a share.
- Derivatives - Like options or futures, if coins are priced on an underlying market or asset price moving in a certain direction before a time or event, which results in a payment being required as part of the rights or obligations attached to the coin, then it may be a derivative.
- Non-cash payment facilities (NCP) - It's unlikely an issuer will be a NCP but, if the ICO involves non-cash payments made to a number of payees, or payments are made in something other than cash and are converted to fiat currency (aka cash money) to complete the payment, then it might be captured.
Either way, think about your investor
Whether your ICO falls under ASIC's regulation or not, if you're running an ICO, make sure you include enough information so that potential coinholders can make an informed decision on whether to invest. ICOs, like any offer in trade or commerce, will in any event be subject to the laws around misleading or deceptive conduct. So think about what goes in your promotional materials and white papers before your offering.
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