ASIC issues guidance on Initial Coin Offerings

Australian companies are increasingly looking to crypto currencies as an option for raising capital for their ventures. We finally have some guidance from Australia’s Corporate regulator which does not by any means ban Initial Coin Offerings, as we have heard Chinese Authorities have done. However this guidance does little to provide any great degree of certainty as to when an ICO is permissible under Australian Law.

The Australian Securities and Investments Commission has recently issued a press release and guidance note on Initial Coin Offerings or ICOs (also called token offerings).

In the press release ASIC Commissioner John Price said:

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

Commissioner Price also sent a caution to companies wishing to raise money through ICOs:

“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.”

For companies planning an ICO the guidance note outlines a minefield of issues companies need to tread through very carefully, which, in part due to the diverse nature of ICOs, does not provide a particularly useful map on how to navigate that minefield. The As suggest by the Note companies need to ensure their ICO is not a managed investment scheme and need to be registered or issued in accordance with relevant license, an offer of shares and need to be conducted under prospectus, an offer of a derivative, or a non-cash payment facility. The Guidance Note also cautioned about the need for any trading in issued tokens or coins to be done consistently with Financial Market rules in Australia which require financial markets to be operated under a license or exempted by the Minister.  The Guidance Note also made it clear that ICOs were not Crowd Sourced Funding under the changes to the Corporations Law, which very recently came into force and that they should not be misleading or deceptive.

The warning is that Corporate watchdog ASIC is watching ICOs very closely to see if companies comply with the legislation. It should be noted though that the approach taken by ASIC in relation to Fintech innovations generally appears to be quite open, to the extent that they are available to be consulted with in planning new ICOs or Fintech ideas via ASIC’s Innovation Hub.