Australia’s financial regulator and watchdog is ramping up its scrutiny into ‘misleading or deceptive’ initial coin offerings (ICOs) and crypto-asset funds targeting retail investors.
The Australian Securities and Investments Commission (ASIC) has confirmed it has identified “consistent problems” to ultimately shut down several initial coin offerings aimed at soliciting funds from retail investors.
A radical new form of digital fundraising powered by cryptocurrencies like bitcoin and ethereum, ICOs are a source of capital for startups and companies who offer custom cryptographic tokens with an inherent benefit in exchange to investors. ICOs aren’t banned in Australia and while there is no ambiguity about their legal status, they are largely unregulated.
The “use of misleading or deceptive statements in sales and marketing materials”, running an “illegal registered managed investment scheme” without possession of an Australian financial services licenses were, in particular, highlighted by the ASIC as consistent problems found among the targeted ICOs, leading to “significant risks” for investors.
The regulator’s commissioner John Price said:
“If you raise money from the public, you have important legal obligations. 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.”
Furthermore, the regulator also revealed it blocked ICOs from raising capital in five separate matters since April 2018 due to their lack of investor protection measures. All five ICOs are on hold while some are restructuring to comply with the mandated requirements, the ASIC said.
ICO operators who have completed their token issue are also seeing the ASIC’s scrutiny. A crypto investment fund dubbed the ‘New Dawn Fund’ was slapped with a final stop order on its Product Disclosure Statement issued by Investors Exchange Limited (IEL) after the regulator’s concerns. IEL has since consented to the final stop order, the ASIC added.
The regulator has previously identified “fundamental concerns” in the structure, status of the offeror and the whitepaper offered in specific ICOs in the past, putting the brakes on the issuance before its launch.
A year ago, nearly to the day, the ASIC released guidelines on ICO fundraising to remind operators of their obligations before a token issuance.
The regulator said at the time:
ASIC recognises that ICOs have the potential to make an important contribution to the options available to businesses to raise funds and to investment options available to investors.
In April, ASIC commissioner Price confirmed the ICO space will be “a key focus” area for the regulator going forward. He stressed that the regulator will keep an “open mind” to new financial innovations but not at the expense of “basic consumer protection” policies.