ICO Regulations by Country: A Global Coin Offering Regulatory Overview (May 2018)

Regulatory and legal compliance is never simple, but it becomes even more complicated in the case of multi-national, borderless ventures such as ICOs. What adds to the compliance burden for is the nascent nature of ICO space and the regulatory uncertainty in virtually all jurisdictions.

When you sell tokens through an ICO, you need to consider not only your own company's jurisdiction but also that of each and every investor in your project. If you are selling security tokens to US investors, you would have to comply with US securities laws. The same goes for most western and Asian countries.

In an effort to protect our clients conducting ICOs and catering to investors across the globe, we have put together this compact guide on the current regulatory framework in various countries. It is important to note that even in countries where ICOs are not regulated yet, anti-money laundering (AML) regulations will still apply. Therefore, lack of ICO rules does not imply a legal vacuum.

1. EU-ESMA: November 2017 - The European Security Markets Authority published two statements on ICOs. The first warned investors of the risk ICO investments entail. The second was a warning to companies involved in ICOs to adhere to any regulatory duties and licenses that may apply to their activity, including the Prospectus Directive, the Markets in Financial Instruments Directive (MiFID), the Alternative Investment Fund Managers Directive (AIFMD); and the Fourth Anti-Money Laundering Directive.
2. USA: Virtual currencies are overseen by several US federal agencies in addition to the state regulators. These agencies include the tax authority (IRS), the AML regulator (FinCEN), the securities regulator (SEC), and the commodities and futures trading regulator (CFTC). Each deals with different aspects of ICOs and cryptocurrencies, which can sometimes lead to overlap.
   1. SEC (Securities and Exchanges Commission)
      1. July 2017 - The SEC published a guide for ICO investors/contributors that explained ICOs, blockchain technology, tokens, and cryptocurrencies and provided guidelines on ICO investments assessment and ICO investor rights under existing federal laws.
      2. July 2017 - The SEC published the DAO investigation report, where it concluded that the company behind the DAO tokens should have been registered as a securities issuer.
      3. December 2017 – The SEC issued a cease-and-desist order to Munchee, a Californian company which was planning to raise $15 million in its ICO. In the order, the SEC said it had conducted an analysis of the Munchee tokens and concluded that the token offering was in fact a securities offering unregistered with the SEC and therefore in violation of US securities laws. The agency placed extra emphasis on the fact that Munchee's marketing materials implied (a) an increase in the value of the tokens is to be expected post-ICO due to the company's and others’ efforts (one of the prones[EA1] of the famous Howey test), and (b) that the company would act to create a secondary market liquidity for the tokens after the sale. These messages created the expectation of profit among the investors, which leads to the tokens being securities. The SEC clarified that the tokens actually having a utility did not negate their being a security. In order to assess the character of the product, a deeper evaluation of the economic nature of the deal is required, taking into account all relevant circumstances and facts.
   2. CFTC (Commodity Futures Trading Commission)
      1. i. October 2017 – The CFTC published an info sheet about cryptocurrency, reminding the public that back in 2015 the commission had already acknowledged cryptocurrencies as commodities. A federal judge approved this stance last March in his decision in the Mcdonnell case, strengthening further the CFTC's cryptocurrency investments enforcement mandate.
      2. December 2017 – The CFTC announced a whistleblower program for informants on cryptocurrency pump-and-dump schemes.
3. Australia
   1. September 2017 - The Australian Securities and Investments Commission (ASIC) published a guide defining ICOs and their legal status, when an ICO would be considered a managed investment scheme, and when a token would be considered a public offering of shares or derivatives.
4. Switzerland
   1. September 2017 - FINMA published an ICO guide, stating that some ICOs may fall under the banking act, AML act, and the country's securities laws.
   2. February 2018 - FINMA published a specific guide on how to submit ICO approval requests. It generally classifies token into payment (currency) tokens (which would not be regulated), asset tokens (which would be considered securities) and utility tokens (which would not be regulated only if the platform/ product behind them is already functional).
5. China
   1. September 2017 - A newly established ICO committee banned individuals and companies from raising funds through ICOs and from providing cryptocurrency trading services. The committee recommended the relevant authorities examine 60 specific trading platforms which enable fund-raising through ICOs.
6. Hong Kong
   1. September 2017 - The SFC (Securities and Futures Commission) published its view on ICOs, stating that some tokens may be considered securities and regulated as such.
7. England
   1. April 2017 - The FCA (Financial Conduct Authority) published a consultation paper on the use of blockchain technology. The document mentions that ICOs can in fact be IPOs or private security placements.
   2. The FCA introduces a regulatory sandbox, enabling companies to launch innovative products and services without licensing them in advance. This framework may be suitable for some ICOs, in FCA's view.
8. Canada
   1. August 2017 - The CSA (Canadian Securities Authority) issued a staff position on ICOs, stating that tokens which are securities or derivatives fall under Canadian securities laws. The CSA said many tokens it had examined were securities due to their being investment contracts and laid out prongs for determining whether a token is an investment contract: (a) investment of funds in a common enterprise (b) with an expectation of profit (c) which will be derived mainly for the efforts of others. The CSA further said the inspection would be conducted on a case-by-case basis and substance would have priority over form.
   2. ii. Another license an ICO may need is a broker-dealer license. To determine whether an ICO falls under this law, it would have to (a) solicit a large number of investors, including private investors; (b) use online platforms in order to reach potential investors; (c) perform marketing activities in events and public conferences and (d) raise a significant amount of money.
   3. iii. The CSA has put a regulatory sandbox in place and called for ICOs to use it in order to receive specific instructions on the application of securities laws to their project.
9. France
   1. October 2017 - The AMF published a consultation paper on ICOs. It covered subjects such as tokens' classification as securities, whether ICOs qualify as crowd sales, and whether an ICO is considered brokering of different assets. The AMF called on the public to respond and provide opinions on three possible approaches: (1) status quo maintenance (keeping the existing regulation while adding ICO best practices for ICOs which do not fall into existing regulatory frameworks), (2) regulation according to existing prospectus laws (subjecting ICOs to existing laws regulating public offerings of securities), and (3) specific ICO regulation (regulating ICOs either by pre-approving them based on the brokers in different assets regulation or by allowing ICOs to receive pre-approval and imposing a disclaimer requirement on those that choose not to in order to inform the public has no AMF approval). The majority of the public and entrepreneurs the AMF consulted with preferred the third approach. This type of regulation would be quite revolutionary as it would not outlaw unapproved ICOs but should enforce greater transparency.
10. New Zealand
    1. October 2017 - The Financial Markets Authority (FMA) published a paper on ICOs and cryptocurrency, dwelling on whether a token can be considered a bond, a share, a managed investment instrument, or a derivative. It proposed assistance for ICOs through some relief measures in order to promote innovation in the country.
11. Japan
    1. April 2017 - The new virtual currency act came into force, regulating all tokens and cryptocurrency offerings and trading. So far, the FSA has granted 15 licenses to companies involved in cryptocurrency trading. (public info only in Japanese, refer to us for more info).
12. Singapore
    1. August 2017 - The Monetary Authority of Singapore (MAS) issued a press release saying that some ICOs may fall under local securities laws and decisions should be guided by the issuance characteristics, such as whether there are rights to future profits, rights to certain actions, and ownership rights in mutual assets.
    2. November 2017 - MAS published a guide on how to conduct ICOs and performed an analysis on six exemplary cases. Contrary to Switzerland's position, MAS does not deem a utility token with a pre-operative platform behind it as a security.
13. Gibraltar
    1. February 2018 - the Gibraltar Financial Services Commission (GFSC) together with the Gibraltar government announced forthcoming token regulation which would cover (1) promotion, sale, and distribution of tokens by persons and entities related to Gibraltar, (2) tokens secondary markets operating out of Gibraltar or within it, and (3) provision of investment advice related to tokens outside of Gibraltar or within it.
14. Germany
    1. February 2018 - The German financial regulator (BaFin) published a paper clarifying its position on ICOs. In short, it requires tokens that qualify as securities to adhere to German securities laws.
15. Spain
    1. January 2018 - The Spanish market regulator (CNMV) referred to ICOs for the first time, saying the position of the SEC may be used as guidance on the matter in Spain.
    2. February 2018 - An in-depth analysis of which laws may apply to ICOs was published.