The Australian Securities and Investments Commission (ASIC) has issued regulatory guidance for businesses considering launching an initial coin offering (ICO).
According to a document on the regulator's website, the legal treatment of cryptographic tokens issued in ICOs will vary in nature depending on their structure. While some token sales will be classified under general Australian consumer law, ICOs offering financial products will be regulated under the country's Corporations Act.
In the latter case, the law will carry some protections for investors, but if an ICO fails to meet the required definitions, that may not be the case.
"In some cases, ICO issuers may frame the entitlements received by contributors as a receipt of a purchased service. However, if the value of the digital coins acquired is affected by the pooling of funds from contributors or use of those funds under the arrangement, then the ICO is likely to fall within the requirements relating to MISs [managed investment schemes]. This is often the case if what is offered through the ICO has the attributes of an investment."
If an ICO is considered an MIS, there are a "range of disclosure, registration and licensing obligations under the Corporations Act," the document says.
Further, in the case of an ICO offering a financial product, the ICO operator may also require a market licence in order to sell tokens.
With misinformation in investment prospectuses prohibited by law, the ASIC statement also warns that ICO white papers are legally required not to issue misleading or deceptive statements..
ASIC commissioner John Price told the Sydney Morning Herald that, if the tokens are not financial products, "investors will need to closely consider the ICO documentation as the investor protection regime under the Corporations Act will not apply."
The regulator's statement comes soon after China issued an all-out ban on ICO schemes, stating that they are "illegal and disruptive to economic and financial stability." ASIC is comparatively sympathetic to the technology, however, believing it can widen the fundraising options available to businesses.
The document states:
"ASIC recognises that ICOs have the potential to make an important contribution to the options available to businesses to raise funds and to investment options available to investors. An ICO must be conducted in a manner that promotes investor trust and confidence, and complies with the relevant laws."
Various international authorities – including Russia, the U.K. and Singapore – have issued statements on token sales in recent months, warning that investors may not be liable for protection.
Approximately $797 million was raised by ICOs in the second quarter of this year, according to CoinDesk's latest State of Blockchain report. According to the CoinDesk ICO tracker, this month alone has raised a total of $517 million in cumulative funding.