What has happened?

Australia's securities regulator has revealed plans to extend its existing guidelines for initial coin offerings (ICOs).

What does this mean?

In a speech at a FinTech event in Sydney last week, John Price, Commissioner at the Australian Securities and Investments Commission (ASIC), said that the Commission will be updating the information sheet it released last year for entities considering ICOs.

Price said that questions will be included that ASIC feels should be explained to all potential investors, consumers or users and that are intended to encourage sound business decision making.

"We will also expand the scope of the information sheet to include more on cryptocurrencies. We will highlight that Australian corporate and consumer law might apply – even if the ICO is created and offered from overseas. This is an important point given the international nature of this sector."

ASIC will also highlight information on how Australian law prohibiting misleading or deceptive conduct will apply in this space.

Price explained that innovative technologies such as blockchain and ICOs can revolutionise how society engages with financial products and services, but he cautioned that with revolution comes risk.

"There is a certain level of opportunism – including businesses or people looking to undertake an ICO because it is seen as an easy, low regulation and low cost option which could lead to immature businesses coming to market. The stories that come out about these businesses are, and will continue to have, a negative impact on investor confidence over time," Price said.

He added that there is a perception that Australian regulations do not apply or can be avoided by engaging in an activity from overseas.

"I cannot stress enough that if you are doing business here and selling something to Australians – including issuing securities or tokens to Australian consumers – our laws here can apply," he said.

Price said that the regulator was also concerned with risks surrounding poor governance around token sales, price manipulation, poor levels of information given to investors as well as risks of money laundering and those linked to 'know your customer'.

He explained that these concerns undermine the market integrity of token-based products and services "and can ultimately impact on the attractiveness of the sector and affect its credibility within the broader financial system".

To avoid them, he encouraged market participants to consider the ASIC guidance and seek proper advice.

ASIC, which is Australia’s corporate, markets and financial services regulator, first issued guidance for ICOs, entitled Information Sheet 225, in September 2017.

Last week, ASIC received delegated powers from the Australian Competition and Consumer Commission (ACCC) to take action under the Australian Consumer Law relating to cryptoassets.

This enables ASIC to take action against misleading or deceptive conduct in marketing or selling of ICOs, even if the ICO does not involve a financial product.

In a statement, the agency said that it was "issuing inquiries to ICO issuers and their advisers where we identify conduct or statements that may be misleading or deceptive".

"As a result of our inquiries, some issuers have halted their ICO or have indicated the ICO structure will be modified," ASIC explained, even though it did not indicate how many token sales have been cancelled or changed.

Price said:

"If you are acting with someone else’s money, or selling something to someone, you have obligations. Regardless of the structure of the ICO, there is one law that will always apply: you cannot make misleading or deceptive statements about the product. This is going to be a key focus for us as this sector develops."

Next steps

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