On 28 September 2017, the Australian Securities and Investments Commission (ASIC) released Information Sheet 225 which provides its view on initial coin offerings (ICOs) and their application in relation to the Corporations Act 2001 (Cth).
An ICO is a form of capital raising whereby an issuer (being an individual or a business) permits potential investors to purchase ‘coins’ or ‘tokens’ via the internet. The rights associated with each coin will vary between each ICO.
Rather than providing an all-encompassing definition, ASIC’s view is that the legal status of ICOs is contingent upon each ICOs structure and operation as well as the rights conferred as a result of the offering. On this basis, the Information Sheet provides potential stakeholders with information as to when and how an ICO could be characterised as an offer of:
- a managed investment scheme
- a share in in a company
- a derivative, or
- a non-cash payment facility.
The Information Sheet defines each of the above investment vehicles and then considers how they could apply to ICOs. Notably, ASIC states that if a certain ICO falls within one of the above categories, then the issuer will have to comply with existing obligations such as issuing of a prospectus for shares or fulfilling the requisite licencing requirements for managed investment schemes or derivatives.
ASIC also considers circumstances and implications as to when the platform making the ICO could be characterised as a financial market or fall under the new Crowd Sourced Funding regime.
As a final note, ASIC reminds potential issuers about their compliance obligations and Australia’s stringent laws concerning misleading and deceptive conduct in trade and commerce, in connection with financial services and in relation to financial products.