Saturday 3 March 2018

ICO / Token Sale Regulations

Anyone following the emergence of the ICO as a fundraising mechanism will be aware of some of the developments in this space, particularly over the last 24 months. As the market continues to evolve and mature it is encouraging to see the emergence of guidelines from a number of governments worldwide.


Crowdfunding was essentially an initial first step in the democratisation of capital - we saw some excellent platforms like; 

The pervasive nature of internet technologies allows founders or promoters to put projects in front of prospective purchasers globally. It is normal to provide the development back story, the detail of prototype development, the roadmap. This then forms the story designed to persuade investors to pledge their capital for a future product, or idea, or a reward of some description. There is often very robust conversation around the project together with direct engagement with the founders.


It could be argued that the ICO / the Token offering is a logical extension of the crowdfunding concept. The numbers are persuasive, this is simply people voting with their own money.


Latest figures:

Whilst it is recognised that any investment related project has the propensity to attract bad actors the consensus is that self regulation is both necessary and desirable and in the interest of all participants. This is especially relevant to those investors (and founders <g>) coming to the market for the first time.

An interesting aspect of the ICO is that to a large extent there is no equity on offer and none expected. It is expected that this will change as the mechanism evolves.

A number of financial regulatory bodies have produced guidance / rules or in some cases have prohibited ICOs entirely. (as is the case for the China and the USA, although this prohibition in the US may not apply to what is known as 'accredited investors'. 

The countries taking a proactive / sensible approach include:-

  • Australia 
  • France
  • Germany
  • Malta
  • Switzerland
  • Singapore 

Australia was one of the first with definitive guidelines and a cohesive policy for both buyers and sellers issued by the Australian Securities and Investments Commission (ASIC).

a machine translation of the (French only) document released by AMF - The AMF regulates the actors and products of the French financial center: financial markets and their infrastructures, listed companies, financial intermediaries authorized to provide investment services or financial investment advice.

The original release

The consultation document in English can be downloaded here:-

On Feb 22nd the AMF released an outline of the feedback received

BaFin - the German Federal Financial Supervisory Authority, a machine translation of the German only document issued by BaFin.
here is the original release


Malta Financial Services Authority (MFSA) is adopting an excellent approach in that they issued a discussion document and requested industry feedback with a view to laying down legislation related to Virtual Currencies, ICO's and Distributed/Digital Ledger Technology.

The PR notice can be found here:-

and the full discussion document here:-

The MFSA went a lot further and issued an additional consultation as a precursor to the establishment of the Malta Digital Innovation Authority. The intention of the Maltese Government is to now put in place the necessary legislation.

"The establishment of the Malta Digital Innovation Authority; the Framework for the Certification of Distributed Ledger Technology Platforms and Related Service Providers; and a Virtual Currency Act."

"The Monetary Authority of Singapore is the central bank of Singapore. Our mission is to promote sustained non-inflationary economic growth, and a sound and progressive financial centre."

FINMA is Switzerland’s independent financial-markets regulator. Its mandate is to supervise banks, insurance companies, exchanges, securities dealers, collective investment schemes, and their asset managers and fund management companies.

The Crypto Valley Association is an independent, government-supported association established to take full advantage of Switzerland’s strengths to build the world’s leading blockchain and cryptographic technologies ecosystem.

The EU

The European Securities and Markets Authority (ESMA) has issued two statements
ESMA alerts investors to the high risks of Initial Coin Offerings (ICOs)

ESMA alerts firms involved in Initial Coin Offerings (ICOs) to the need to meet relevant regulatory requirements

ESMA says:-
"Depending on how they are structured, ICOs may fall outside of the scope of the existing rules and hence outside of the regulated space."

Industry Led
ICO Governance: a Protocol-Based Self-Regulation of Token Sales in
Decentralized Capital Markets by Miko Matsumura

The ICO Governance Foundation (IGF) is a decentralized global organization and Swiss Foundation whose mission is the establishment of a protocol-based global community that performs a self-regulatory function for ICOs in decentralized capital markets.


Like many of the innovations delivered by internet technologies their adoption is largely driven by citizen engagement. The fact that many governments worldwide are resisting both crypto currencies and the ICO may have more to do with the control of capital than the potential risks for investors. 


Caveat emptor  "Let the buyer beware" applies to any and all transactions one ever engages in. Due diligence or careful thought and analysis is absolutely essential when considering ICO's or any crypto currency related instrument.

1 comment:

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