The regulatory landscape of Blockchain world is shifting fast with every regulation by every government acting as a tectonic shift, reshaping the ICO landscape forever. There are some regulations that have stabilizing effect and others make the ground shaky. Australian ICO regulations will fall under the former, as it has made business in Australia, as far as ICOs go, very stable. This doe not mean good or bad — just stable.
ICO and the world
The Australian Securities and Investment Commission (ASIC) have finally allowed the ICO and has issued the regulatory guidelines to explain how ICO will be regulated.
The new approach of Australia is distinctly different than the path of the regulators in other countries. The government of China has determined to outcast all ICOs, with all the seven regulators in China declaring a joint legal order. Many ICOs were declared as an unapproved public financing activity, involving illegal fundraising, financial fraud, and pyramid schemes.
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But China is not the only country to take steps to rule in ICOs. There are many. In July the Securities and Exchange Commission (SEC) of the US, issued a warning that the US securities laws applies to ICOs. The Indian Government declared Cryptocurrencies to not currency but said little about ICOs in particular. The Hong Kong Securities and Futures Commission (SFC) specified that they will permit the trading of ICO tokens provided that they are not categorized as securities. Cryptocurrency exchanges with operations in Japan are currently required to apply for a license granted and regulated by Japan’s Financial Services Agency (FSA). Also, the FSA has to individually approve any and every blockchain token before it can be listed on these licensed exchanges.
The Australian approach (Regulations):
ASIC’s information sheet clearly states the regulatory principles for ICOs to operate within Australia’s regulatory framework, while encouraging the innovation and the development of new financial business models. Australia’s approach is an amalgamation of a set of regulations that might apply to the public as well as the private companies at the time of launching their IPO.
There are many ways for an ICO to stage the release of its tokens, which always remains organic. Some acquire the process by raising the venture capital and most of them publish a white paper to predict the launch. Currently, some ICOs are seeming to be having started imposing a lock-up period of 3–12 months, during which the investors are not allowed to sell their tokens. Making sense of the projects and the rules imposed on the token sales, can make it a little tough for the investors to make a cognizant decision.
Predominantly, if an ICO is operating as a Managed Investment Scheme (MIS) with the people who are brought together to contribute money in a collective investment to get an interest in the scheme, the operator will require to comply with a range of disclosure, registration, and licensing obligations under the Corporations Act.
Considering ASIC, an ICO could also offer shares. In this case the company must keep the record of all the shares issued. This is very similar to the way that the public companies issue their securities. The register must have the information about the company’s members or shareholders and the number of shares in the company. First and foremost, this kind of offering must be followed by a disclosure document.
That disclosure document must be wedged with the ASIC before the launch itself. It can be exempted from providing the disclosure, only when a company is going to issue shares to lesser than 20 people and raising less than AUD $2 million in the first 12 months of its initiation.
If the ICO is an offer of a subordinate for instance, an option or a future, then the company will need to be licensed under the ASIC. In Australia, the companies will require a financial service licence as a part of their business, if they provide financial product or an advice to the clients, they are dealing in a financial product, if they are marketing for a financial product, if they are operating a registered scheme, if they are providing a custodial or depository service, or if they are providing the traditional trustee company services.
ASIC is directing the potential investors to their Money-Smart website, as well as the detailed guidance for ICO operators. This provides direction about the risks of investing in an ICO. It warns that the value of crypto-tokens is so elusive that the tokens may get stolen, and also warns about many ICOs that are scams.
Buyers, Be Aware:
Even with these new regulatory principles, the challenge for the investors still remains the same, to separate the schemes from the scams. The ASIC’s media release and the information sheet must not be considered as a general stamp of approval. The regulator is hardly suggesting that they are fit for general consumption.
The ASIC recommends that anyone who is willing to invest in an ICO, must check first, whether the issuer company is registered in Australia and also if it has a legitimate licence to operate an ICO. If the company is not registered and does not have a licence in Australia, then the investors will have little protection for themselves if the things go wrong in the future.
Australia seems to be taking a more supportive approach by recommending and promoting operators to play within the rules. The enforcement of these laws, however, is still a challenge.
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