Tuesday, April 03, 2018 07.58AM /
Initial coin offerings (ICOs) have been
all the rage these past years raising an estimated US$4 billion globally.
An increasing number of startups, in the blockchain space and beyond, are
opting for the novel fundraising method instead of traditional venture capital. But as ICOs rise in popularity, these are becoming a
key area of focus for regulators around the world who are warning about the
unregulated nature of the practice in most jurisdictions. Regulation is coming
rapidly for cryptocurrencies and ICOs, and countries have taken different
How are ICOs and cryptocurrencies regulated around the
world? Here is a follow up article to our previous “State of ICO” piece posted in October 2017.
The People’s Bank of China banned all ICO activities in 2017
and ordered cryptocurrency exchanges to shut down. According to several reports released
earlier this year, China is preparing a set of regulations to take effect in
2018 that would put an end to the ban over ICOs.
Following the lead of China, South Korea’s Financial
Services Commission announced in
September 2017 the prohibition of ICOs, but recent reports suggest
that the ban could be eased in the coming months.
In the EU, ICOs are allowed, given they are in
adherence to AML/KYC policies as well as to required business regulations and
The Swiss Financial Market Supervisory Authority
(FINMA) released ICO guidelines last
month that detail how the authority is regulating ICOs and cryptocurrencies
depending on their function and transferability. FINMA categorizes tokens in
three types, payment tokens, utility tokens and asset tokens, but hybrid forms
exist too. ICO activity in Switzerland is covered by money laundering, banking,
securities and collective investment laws.
ICOs are allowed in Lichtenstein but depending on the
rights attached to a certain token, applicability of securities and financial instrument law may apply.
ICOs are allowed in Germany. Regulation applicable to
a token is dependent of the rights the cryptocurrency holds. An ICO may need to comply with current regulations
including the Banking Act, Investment Act, Securities Trading Act, Payment
Services Supervision Act, and Prospectus Acts.
ICOs are allowed in Estonia and the government is even considering conducting its own token sale to raise funds.
ICOs are allowed in Lithuania. In some cases, current
laws surrounding securities and money laundering may apply.
ICOs are allowed in Russia but the government is
working on a regulatory framework. Russia has stated that securities laws may
apply to ICOs and has required cryptocurrency miners registration and taxation.
Last month, one of Russia’s government ministries proposed a law that,
if approved, would introduce a capital requirement for ICO organizers.
ICOs are allowed in the UK. The UK Financial Conduct
Authority has issued warning to investors, stating that ICO projects are still
experimental and therefore pose risks to investors. It has said that securities law and other areas of
financial or banking law may apply to the issuance of a token depending on the
different aspects and rights the token holder obtains through holding it.
ICOs are allowed in Gibraltar. In October 2017, the
government established a
framework for regulating distributed ledger technology companies, which came
into offer this year. It encompasses ICOs and subjects them to financial
controls and standards.
ICOs are allowed in the Isle of Man. The country is working on a
regulatory framework that’s set to be introduced in the near future.
States of America
ICOs are allowed in the US but regulations vary widely
from state to state. On the federal level, ICOs are expected to be registered and
licensed the same as if they were not ICOs. This includes registering with the
Securities and Exchange Commission if the ICO is to sell or trade securities.
ICO organizers are also expected to adhere to AML/KYC practices.
ICOs are allowed in Canada. The Canadian Securities
Administration applies a four-factor test in determining whether a
cryptocurrency have to be registered as securities. The factor test considers
substance over form when considering: soliciting a broad base of investors,
including retail investors; using the Internet, including public websites and
discussion boards, to reach a large number of potential investors, attending
public events, including conferences and meetups, to actively advertise the
sale of the coins/tokens; and raising a significant amount of capital from a
large number of investors.
The Financial Services Regulatory Authority (FSRA) of
the Emirate of Abu-Dhabi is planning to
regulate cryptocurrencies and ICOs. According to Abu Dhabi regulator, digital
currencies are “commodities” and the majority of ICOs will be regulated as
“specified investments.” Tokens that are classified as
“specified investments” (securities, shares, and bonds) fall under the FSMR
regulation. The FSRA will determine whether a given ICO is subject to
regulation on a case-by-case basis.
ICOs are allowed in Israel but the government wants to
introduce regulation. The Israeli Securities Authority has announced that a
panel was put in place to study how ICOs operate in the country. Israel also
plans to introduce tax laws on ICO tokens and released earlier this year a draft
circular detailing how domestic ICOs could be taxed.
ICOs are allowed in Singapore. Last year, the Monetary
Authority of Singapore (MAS) released guidelines regarding
cryptocurrencies and ICOs. The guidance dictates that cryptocurrencies that are
“capital market products” under the Securities and Futures Act can be regulated
under the MAS. This includes cryptocurrencies that either infer an ownership
interest in a corporation or product, debt, or a share in an investment scheme.
Last year, the Financial Services Authority said that depending on the
structure used, ICOs may be regulated under Japanese law, including by the
Payment Services Act and the Financial Instruments and Exchange Act. The
authority is reportedly considering ICO regulations. Japan introduced
cryptocurrency regulations last year, recognizing these as a legal method of payment.
The law requires cryptocurrency exchanges
to hold a special license to operate.
ICOs are allowed in Thailand but unregulated. The central
bank is preparing a
framework to regulate cryptocurrencies.
ICOs are allowed in the Philippines but regulators
have said that some tokens might be considered as securities and thus must
comply with securities registration regulations. The Philippines Securities and
Exchange Commission is currently crafting rules to regulate cryptocurrency transactions.
ICOs are allowed in Hong Kong. Regulators have said
that certain tokens might be securities and
should be treated as such.
ICOs are allowed in Australia but if an ICO or
cryptocurrency falls under the Corporations Act, additional disclosures are triggered. For instance, an ICO might trigger a
disclosure requirement if the ICO is a managed investment scheme MIS. A few
other possible triggers of the Corporations Act involve, for instance, the ICO
is being offered as a share of a company, as a directive, or as a non-cash
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