Global Regulation Of Initial Coin Offerings: Part 2

Applications of Existing Legislation/Securities Law to ICOs

While some jurisdictions have taken a hostile approach to ICOs, such as the bans by Korea and China, discussed in Part 1 of our 2 part series on international regulation of ICOs, a more measured approach is more common. Many jurisdictions have taken the stance that ICOs can and should be regulated by existing legislation, with slight variations in approach.

Securities Regulation

By far the most frequent conclusion regulators around the world have come to is that, depending on the nature of the ICO, securities laws may be applicable. This is the stated approach in Canada, the USA, the United Kingdom, Hong Kong, Abu Dhabi, and most recently, as of November 14, 2017, Singapore. The analysis of whether an ICO amounts to a security is carried out on a case-by-case basis in these jurisdictions, and the determination of whether certain ICOs will amount to a security is likely to vary from jurisdiction to jurisdiction. Certain regulatory authorities like the Monetary Authority of Singapore have tried to be clear about what offerings will and will not constitute a security in their guidance, while others have been more vague. In any event, a careful reading of local securities laws would be prudent in all these jurisdictions to determine what rules must be followed and when.

In cases where securities laws are deemed applicable per local regulation, the business launching the ICO will be required to comply with securities laws or seek exemptions. Compliance can include licensing of the business and/or individuals involved in the ICO, and substantial disclosure obligations. Commentators have predicted that the US SEC, in particular, may become particularly vigilant in prosecuting enforcement actions against ICOs that do not follow securities law requirements.

Many of these jurisdictions also have in place a regulatory sandbox, which may help to ease compliance requirements in those locations as regulators try to work with cryptocurrency businesses to develop rules that provide investor protection without greatly stifling innovation. Such regulatory relief is usually sought by applying to the regulator/sandbox on a case-by-case basis. Canada's own sandbox approach saw the Ontario Securities Commission grant exemptive relief approving TokenFunder's ICO, subject to the company's compliance with certain conditions.

In many of these jurisdictions, it has also been either expressly stated by the...