In an announcement released May 1, the Australian Securities & Investments Commission (ASIC) revealed that it is issuing inquiries to ICO holders suspected of conduct or statements that may be misleading to Australian investors, in addition to inquiries regarding unlicensed sales.
"ASIC took action to protect investors where we identified fundamental concerns with the structure of an ICO, the status of the offeror and the disclosure in its white paper," the commission stated. "This means the offeror would have been in breach of the relevant provisions of the Corporations Act had the offer proceeded, potentially leading to serious penalties under the Act."
ASIC Commissioner John Price asserted that this issue will be of key importance as the ICO market develops. "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," Price said.
In 2017, ASIC revised its guidance to ICO issuers, bringing token offerings recognized as "managed investment schemes," "non-cash payment facilities," or derivatives offerings under the auspice of the Corporations Act of 2001.
There has also been growing concern about malicious marketing or sales practices from non-Australian ICOs. The failure to fully disclose all risks in whitepapers and prospectuses – as required for other securities offerings – remains a point of concern, not only within the country but among the international regulatory community.
Early this year, the International Organization of Securities Commissions stated:
"While some operators are providing legitimate investment opportunities to fund projects or businesses, the increased targeting of ICOs to retail investors through online distribution channels by parties often located outside an investor's home jurisdiction – which may not be subject to regulation or may be operating illegally in violation of existing laws – raises investor protection concerns."
ICOs offer an alternative to venture capital funding or initial public offerings for startups. By selling altcoins and tokens for the purpose of financing or utilizing projects, companies that would be recognized as too risky or too small by traditional investment entities have a means to raise large amounts of seed capital. The widely unregulated nature of ICOs has, however, led to a notable number of fraudulent or misleading investment schemes, leading regulators in countries like China and South Korea to ban or strongly curtail the instruments.
Per Price, ASIC has chosen to maintain an "open mind when it comes to new technologies and 'early-days' business models," believing that Australia's FinTech and RegTech sectors could flourish in the "right regulatory environment."
"ASIC's concerns about ICOs have been expressed several times previously, and they remain current," Gervase Greene, a spokesman for ASIC, told ETHNews. "Our point was not to warn of any particular country from which an offering might come, but rather to protect Australian investors from any such risk. And we have warned issuers and promoters that placing Australian investors at risk might involve a breach of Australia law, regardless of their own jurisdiction."