ASIC has recently stopped a number of retail initial coin offerings and token generation events (ICOs), has taken action in respect of a completed ICO and has even issued a stop order on a PDS for a crypto fund.
ASIC’s two key concerns – misleading and deceptive information in the materials used to market the ICOs and breaches of the financial services laws – have repercussions for anyone thinking about working with crypto assets in Australia.
If a crypto asset is a “financial product” under the Corporations Act, a raft of regulatory requirements will apply to not only the ICO, but also to anyone broking the token or listing it on an exchange. So unless you understand and can comply with these requirements, take care to ensure that the crypto assets you deal in are not financial products.
This isn’t always black and white; legal analysis is often required. Our September 2017 blog, 'Global Regulation of ICOs', explored typical crypto financial products. Since then, we’ve analysed some interesting crypto assets and services, including:
Tokens don’t always fit neatly into the financial product categories; many are hybrids and exemptions are available in some cases.
Here’s a quick list of things to look out for – if one or more of these features are present, the token is likely to be a financial product:
Businesses that don’t identify whether the tokens in which they deal are financial products and prepare to comply with the relevant requirements early on, may:
So, it’s wise to get advice at the outset. It’s also a good idea to speak to ASIC directly, even if the tokens in which you deal aren’t financial products as ASIC is now responsible for all ICOs and businesses dealing in crypto assets.
By engaging with ASIC’s Innovation Hub, you can benefit from their insights and show them that you’re a responsible operator.
Your meeting with ASIC will go better if you demonstrate that you know what regulatory obligations apply to your token and/or service. For example, for tokens that are financial products:
Now that the hype cycle has almost reached full circle, we’re seeing a trend away from “unregulated” tokens and ICOs. Reputable token issuers recognise the advantages of operating in a regulated market, for promoting investor confidence. And it’s usually cheaper to comply from the outset than to deal with regulatory intervention at a later date.
Charmian Holmes is a solicitor director of The Fold Legal
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