In recent months a number of organisations have issued notices and guidance to the potential participants of ICOs, explaining the inherent risks which these activities present.

These include the International Organization of Securities Commissions, the European Securities and Markets Authority, the Financial Conduct Authority of the United Kingdom and, of course, Gibraltar's Financial Services Commission.

Responsible token issuing entities, in particular those who have been advised by Hassans International Law Firm, agree that these organisations are right to caution potential participants in respect of these activities, given the nascent state of the token sale community.

These token issuing entities note that it is important for investors and consumers who participate in their token sales do so from an informed position, being fully aware of the risks of their participation. It is their view that, by ensuring these considerations are clearly and properly communicated to the ICO participants, they are able to do their part in fostering a more mature and accountable token sale community, which benefits both responsible token issuing entities and token sale participants.

Furthermore, it is important to note that, whilst there may be an argument to be made that the responsibility of a token issuing entity in this regard may only be a moral one in some jurisdictions, the Gibraltar Financial Services Commission ("GFSC") will continue to monitor the use of tokens as a means of raising finance.

The Government of Gibraltar has already announced its intention to introduce regulations specifically related to the promotion and sale of tokens in and from Gibraltar, during the course of 2018 (the "Token Sale Regulations"). In the meantime, whilst the GFSC have clarified that token sales may not, in and of themselves, fall within the scope of the DLT regulatory framework (which became effective as of 1st January 2018), the approach being taken by law firms such as Hassans is to ensure that token issuing entities undertaking token sales in and from Gibraltar do so in a responsible manner. One specific of example of this approach is transparency; communicating all risks inherent in participation in the token sale to investors and consumers.

Although the exact scope of these Token Sale Regulations has yet to be confirmed, Hassans is already working with clients who voluntarily adopt and adhere to the principles set out in a token sale code of conduct formulated by Hassans.

The purpose of this voluntary code of conduct is to ensure our clients conduct token sales in accordance with industry best practices, whilst also safeguarding the interests of token sale participants. The code also insulates clients from potential issues and liabilities arising from their token sales in the absence of the clarity and guidance that the future Token Sale Regulations will provide.

Some of the issues which must be considered in anticipation of a token sale (whether it is a private or public pre-sale, or a public token sale) include:

  • the legal characteristics and nature of the token itself (and whether it may come within the scope of any existing legislation in Gibraltar);
  • the marketing of their tokens and token sales, once a legal analysis has been undertaken, ensuring that all risks inherent in the token sale have been properly considered and fully disclosed to potential token sale participants ; and
  • whether the token issuing company has implemented the appropriate measures in terms of its security, corporate governance, data control, AML/KYC, accounting treatment, and taxation considerations.

Those seeking to conduct token sales from Gibraltar are strongly urged to obtain proper legal advice from experienced professionals to ensure that all relevant issues and potential risks are addressed well in advance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.