September 17, 2019

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ASIC Acts on Initial Coin Offerings and Crypto-Asset Funds

In a statement issued today, the Australian Securities and Investments Commission (ASIC) revealed that it has prevented five Initial Coin Offerings (ICOs) from raising capital and will be taking further action in respect of one completed ICO.  The ICOs have been put on hold and some will be restructured to comply with relevant laws and regulations.  ASIC has also issued a final stop order in respect of a Product Disclosure Statement (PDS) issued by Investors Exchange Limited for units in the New Dawn Fund, which proposed to invest in a range of cryptocurrency assets.

ASIC Commissioner John Price said: “It is the legal substance of your offer – not what it is called – that matters.  You should not simply assume that using an ICO structure allows you to ignore key protections there for the investing public and you should always ensure disclosure about your offer is complete and accurate“.

ASIC’s actions and statements are consistent with its Information Sheet 225 updated in May this year which encourages potential ICO issuers to consider if the nature of their ICO resembles a financial product.  It is likely that ASIC will increase its enforcement activities in this area due to a boost in government funding and its new cost recovery system via industry funding.

Accordingly, ICO issuers should give serious consideration and seek advice about how to comply with the relevant regulations or otherwise undertake a restructure of their ICO.  We note that in many cases it may be worthwhile to obtain an Australian Financial Services Licence (AFSL), be appropriately authorised by an AFSL holder or prepare a prospectus, particularly if the value of the ICO depends on the features that cause it to be a financial product.

Copyright 2019 K & L Gates


About this Author

Jim Bulling, KL Gates, financial services lawyer, funds management attorney

Mr. Bulling's practise focuses on banking and financial services and he acts for a range of entities in the financial services and funds management industry. His clients include Australian and international investment managers, banks, trustees of superannuation funds, wholesale and retail investment trusts, funds management companies and financial planning groups.

His main areas of focus include banking and financial product disclosure issues, financial services compliance issues, financial product distribution issues and superannuation and...

Edwin Tan, KL Gates, investment fund attorney

Mr. Tan is a commercial and regulatory lawyer with a focus on the financial services industry. He advises on a range of Australian regulatory and compliance issues relevant to FinTechs, fund managers, financial advisers and other financial services entities.

Mr. Tan also provides advice on governance and compliance measures targeted at the prevention of bribery, corruption and anti-money laundering.

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Felix Charlesworth, KLGates, Financial attorney

Mr. Charlesworth is a commercial and regulatory lawyer with a focus on the financial services industry.

 Mr. Charlesworth advises on a range of regulatory and compliance issues relevant to wholesale and retail fund managers, financial advisers, superannuation fund trustees and other financial services entities. He also has experience in advising multinational corporations about compliance measures targeted at the prevention of bribery and corruption.