The Australian Securities and Investments Commission (ASIC) has published an “information sheet” (INFO 225) that discloses how companies that are considering token offerings (also referred to as ICOs) may be affected by Australian law, specifically the Corporations Act 2001.
The information sheet specifically mentions ASIC’s acknowledgment that token offerings have “the potential to make an important contribution to the options available to businesses to raise funds.” However, because of the proclivity that token offerings have to attract cybercriminals, ASIC cautions that they must “be conducted in a manner that promotes investor trust and confidence, and complies with the relevant laws.” Businesses that wish to comply with Australian law have been cautioned that application of the Corporations Act will depend upon their tokenization model.
Furthermore, the ASIC guidance offers advice on a plethora of related issues, like what constitutes a managed investment scheme, when token offerings represent company shares or derivatives, and how companies can obtain informal assistance from ASIC’s “innovation hub.” ASIC clearly distinguishes between two forthcoming legal classifications for token offerings. “In some cases, the ICO will only be subject to the general law and the Australian consumer laws regarding the offer of services or products. In other cases, the ICO may be subject to the Corporations Act.” ASIC also makes it clear that token offerings are unique and separate from “crowd-sourced funding” (CSF) as defined by the Corporations Act from September 29, 2017, and thus will not be regulated by that previous legislation.
Under new laws, CSF will be viewed by the Australian government as “a financial service, often including a platform or market, where start-ups and small businesses raise funds, generally from a large number of investors that invest small amounts of money.” Specific rules for CSF will reduce regulatory requirements for public fundraising while maintaining a responsible measure of investor protection.
Australia has recently established itself as a leader in promoting new financial technologies. The island nation has been at the forefront of keeping its legal system up-to-date with advancements in cryptocurrencies and blockchain technology.
ASIC’s guidance comes in the wake of comments from several other foreign financial regulators on token offerings. The Wild West phase of token offerings may be quieting down as 2018 approaches and more and more governments start to take notice.