What has happened?
Singapore Exchange (SGX) has clarified the rules for listed companies considering conducting initial coin offerings (ICOs).
What does this mean?
In a regulator's column, Tan Boon Gin, CEO of SGX's regulatory branch, SGXRegCo, made it clear that if a company listed on SGX is issuing digital tokens, the tokens themselves are not listed on the SGX, and the SGX rules apply only to the company, not the tokens nor their holder.
He went on to say that issuers will be required to make certain disclosures to SGXRegCo to ensure that investors can make informed decisions.
Issuers will be expected to consult with SGXRegCo in advance, provide a legal opinion on the nature of the tokens and an auditor's opinion on the ICO's accounting treatment, both of which need to be from "reputable" firms.
However, SGX may demand additional opinions "to ensure that the relevant statutory requirements are complied with".
Issuers will also be required to include certain disclosures, including:
- the rationale for, and risks arising from, the ICO;
- how the funds raised will be used;
- what 'know-your-customer' checks will be conducting to address anti-money laundering and terrorism financing;
- the accounting and valuation treatments of the ICO;
- the financial impact on the issuer as well as contingent settlement provisions;
- any impact of existing shareholders' rights.
Issuers can also hold sharing sessions with shareholders to ensure they understand what the ICO entails for it, so that they can make informed decisions.
They also need to ensure that ICOs are "properly accounted for in their financial statements" and that associated risks have been addressed and milestones on utilisation of funds raised have been adhered to.
In addition, if the tokens are securities under the Securities and Futures Act (SFA) additional measures may apply.
Finally, SGXRegCO advised listed companies planning ICOs to seek professional advice, adding that its main concern is how the issuer safeguards its own interest and that of shareholders.
"The issuer’s board is ultimately responsible for maintaining a robust system of risk management and internal controls," Gin warned.
If you want to take advantage of blockchain's huge potential and disruptive impact, while avoiding falling foul of ever-developing regulatory and legal requirements, visit our Hogan Lovells Engage Blockchain Toolkit.
For more news and analysis that is tailored to you, as well as access to Hogan Lovells' cutting-edge interactive Lawtech tools, register for free on Engage.
You can also keep track of all the Engage content by following our LinkedIn page.