What has happened?
The Australian corporate regulator, the Australian Securities and Investments Commission (ASIC) has released new information to help businesses involved with initial coin offerings (ICOs) and cryptoassets to consider their legal obligations and satisfy themselves they are operating lawfully. The release of this new information forms part of the regulator's efforts to fight cryptocurrency related fraud alongside other relevant agencies including the Australian Competition and Consumer Commission.
What does this mean?
On May 30, 2019 ASIC updated Information Sheet 225 Initial coin offerings and crypto-assets (INFO 225) to help market participants understand how the Corporations Act 2001 (Cth) (the Act) and the Australian Securities and Investment Commission Act 2001 (Cth) may apply to businesses considering undertaking an ICO or that are involved with cryptoassets.
The regulator said that the update is based on its recent experiences with ICOs and cryptoassets, which show that these will often be financial products or involve financial products that are regulated under the Act.
ASIC has grouped cryptoasset participants into several distinct categories and has broadly set out the obligations that may apply to participants in each category. Notably, INFO 225 states that if companies deal with cryptoasset that fall within the definition of "financial product", then Australian laws apply, including the requirement to hold an Australian financial services (AFS) licence.
Intermediaries that advise on, deal with or provide services linked to cryptoassets that are financial products also need to hold an AFS licence.
Australian laws will also apply to miners and transactions processors that are part of the clearing and settlement process for tokens that are financial products.
Further, if the payment service involves a non-cash payment facility, a range of laws will apply, including the requirement to hold an AFS licence.
INFO 225 also provides a list of items to consider when offering an ICO, noting that “entities and their advisers need to consider all the rights and features of the ICO (regardless of how it is named and marketed) in determining whether the cryptoasset is a financial product or involves a financial product”.
It also considers a range of further issues, such as what constitutes misleading or deceptive conduct in relation to an ICO or cryptoasset; when an ICO could be or involve a financial product; and when a cryptoasset trading platform could become a financial market.
INFO 225 also discusses the entities that may propose to issue financial products that are linked to, invest in or expose customers to cryptoassets, as well as how overseas categorisations of cryptoassets translate in the Australian context.
INFO 225 was first published in September 2017.
What to do now?
As ASIC is laying out the groundwork for a more comprehensive regulatory environment for those entities and businesses hoping to be involved in ICOs and cryptoassets, it is important for these entities and businesses to become familiar with INFO 225 and their legal obligations under Australian law.
In summary, INFO 225 provides:
- a non-exhaustive list of items to consider when offering an ICO;
- information on what is classed to be misleading and deceptive conduct in relation to an ICO or cryptoassets;
- information to identify when an ICO could be or involve a financial product;
- guidance about platforms that enable trading of cryptoassets; and
- information about financial products that reference cryptoassets.
The regulatory requirements are in place to maintain the integrity of Australia's financial market and ensure consumer protection and the regulator is actively monitoring this space.
Accordingly, entities and businesses involved in ICOs and cryptoassets must ensure they have processes and procedures in place to ensure they comply with the law as well as understand that Australian laws will apply even if the ICO or cryptoasset is promoted or sold to Australian entities from offshore.
If in doubt, entities and businesses involved or looking to be involved in ICOs and cryptoassets should seek professional advice.
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