ASIC just updated its guidance on ICOs: what’s changed?

Last week the Australian Securities and Investments Commission (ASIC) updated its guidance on initial coin offerings (ICOs). It was only in September last year that ASIC first issued its guidance. The short space of time between initial release and update shows how regulators are trying to keep up with a rapidly evolving market.

The ASIC guidance is published on the ASIC website as INFO 225 and you can access it here, but the revised version doesn’t show what has changed. To find out exactly what changed, we did a word-for-word comparison. You can download a PDF of our comparison.

These are the things that we think are important to note in ASIC’s revised guidance:

• Not just ICOs – it’s about “crypto-assets”: ASIC has extended its guidance beyond ICOs to cover more generally crypto-currencies and digital tokens. ASIC calls these “crypto-assets.”

• Taking action against misleading and deceptive conduct: ASIC can now take action against misleading or deceptive conduct in marketing or selling of ICOs, even when the ICO does not involve financial products. That’s because ASIC has just been given a delegation of power from the Australian Competition and Consumer Commission (ACCC) to take action under the Australian Consumer Law relating to crypto-assets. (Before this delegation, ASIC could only take action against misleading and deceptive conduct if the crypto-assets were financial products.) ASIC has added more detailed guidance on misleading and deceptive conduct in the guidance note, including some examples:

  • using social media to generate the appearance of a greater level of public interest in an ICO;

  • arranging for a group to engage in trading strategies to generate the appearance of a greater level of buying and selling activity for an ICO or crypto-asset;

  • failing to disclose adequate information about the ICO; and

  • suggesting that the ICO is regulated or that a regulator has approved it, if that is not the case.

• Financial products linking to or referencing crypto-assets: ASIC says it has now engaged with businesses that are proposing financial products that would invest in crypto-assets, or otherwise enable consumers to have exposure to crypto-assets. These products may require a financial services licence or for an existing licensee, a licence variation for a new product authorisation. ASIC says that applications for a licence or a licence variation in relation to crypto-asset related financial products would be regarded as “novel”, and assessment of a novel application can be expected to take more time.

• When a crypto-asset may be a financial product: ASIC has slipped in a mention that it does not regard Bitcoin as a financial product. When discussing whether crypto-assets could be derivatives (a form of financial product), ASIC observes that tokens issued in an ICO may be derivatives where, for example, payment arrangements associated with changes in the relevant product, index or asset which the token is linked to are structured as a smart contract or self-executing contract represented in the token itself.

• Look at the contents, not the label: The mere fact that a token in an ICO is described as a “utility token” does not mean that it is not a financial product, and just because you say a crypto-asset is not a financial product, it does not mean that it is not a financial product. Similarly, just because a crypto-asset is described as a “digital currency” does not mean it is not a financial product.

• Remember directors’ duties: ASIC has included a reminder that directors of companies involved with ICOs or the issue of crypto-assets have duties as directors to act in the best interests of the corporation and to discharge their duties for a proper purpose.

• Get advice and keep it up-to-date: Last but not least, ASIC says it is important to get professional advice, including legal advice, on all the circumstances of the issue or sale of crypto-assets, and to make sure that this advice is kept up-to-date where the design of the ICO or crypto-asset changes over its course of development.

For more information, ASIC’s Innovation Hub is a good start.

Patrick Dwyer

Legal Director