The Australian Securities & Investment Commission (ASIC) has released a guidance paper on the regulatory framework for initial coin offerings (ICOs) in Australia.
“ICOs generally operate by allowing investors to use cryptocurrency (such as bitcoin) to purchase coins via the internet for a set period of time,” ASIC said.
“The ICOs are often global offerings which can be created anonymously and/or accepted anonymously.”
The paper clarifies what type of ICOs would be regarded as a Managed Investment Scheme (MIS), and therefore subject to the Corporations Act.
Here’s ASIC on what constitutes an MIS:
A managed investment scheme (MIS) is defined within the Corporations Act. Basic indicators of whether an arrangement is an MIS are as follows:
— people contribute assets (such as digital currency) to obtain an interest in the scheme (‘interests’ in a scheme are generally a type of ‘financial product’ and are regulated by the Corporations Act)
— the assets are pooled together with one or more other contributors or used in a common enterprise to produce financial benefits or interests in property, and
— the contributors do not have day-to-day control over the operation of the scheme but, at times, may have voting rights or similar rights.
Based on those parameters, it appears that the majority of ICOs in Australia will be subject to the requirements of the Corporations Act.
“In some cases, ICO issuers may frame the entitlements received by contributors as a receipt of a purchased service,” ASIC said.
However, most people will choose to buy coins or tokens in an ICO as a vehicle to use pooled resources to generate a return on their investment.
“If the value of the digital coins acquired is affected by the pooling of funds from contributors or use of those funds under the arrangement, then the ICO is likely to fall within the requirements relating to MISs,” ASIC said.
That means an ICO which satisfies the criteria for an MIS in Australia will be subject to registration, licensing and disclosure requirements in accordance with the Corporations Act.
ASIC said that any individuals or entities considering an ICO, that are seeking clarification on whether they would have to meet additional obligations under the Corporations Act, could contact ASIC’s Innovation Hub to request assistance.
Accompanying today’s guidance paper, ASIC Commissioner issued a warning on the risks surrounding ICOs.
“ICOs are highly speculative investments, are mostly unregulated and the chance of losing your investment is high” said ASIC Commissioner John Price said.
“Consumers should understand the risks involved, including the potential for these products to be scams, before investing.”
More on ASIC’s information paper can be found here.