Initial Coin Offerings: A comparative overview of securities regulatory environments in the US, UK and Asia Pacific
18 September 2018
Distributed ledger technology, and particularly applications of blockchain, are poised to revolutionise a range of industries, from financial services to supply chain management.
Initial coin offerings (ICOs) – sales of blockchain-based “coins” or “tokens” that may be exchanged for products, services or flat currency – have become a powerful and seemingly efficient new means for blockchain-related businesses to raise capital, bypassing more traditional funding through venture capital firms, institutional investors or regulated securities markets. However, the seeming ease of ICOs has led many sponsors – even those acting with good intentions – to engage in activities that may violate securities regulations in various jurisdictions.
Securities law compliance is particularly challenging in the context of blockchain-based instruments because they are decentralised, liquid and transferable across regulatory borders virtually with the click of a button. Furthermore, existing securities regulatory frameworks were not designed to address the novel features of these emerging technologies, which often leads to uncertainty and inconsistency in the ways regulators across jurisdictions characterise them.
This article is intended to provide a very high-level overview of the securities regulatory environments for ICOs in the United States, the United Kingdom and Asia Pacific. It concludes with a discussion of general considerations for ICOs of non-security utility tokens. The regulations discussed herein are nuanced – one size does not fi t all – and they are just some of the many legal hurdles an ICO sponsor may need to address before commencing an offering. Sponsors should engage sophisticated counsel in key jurisdictions well in advance of any offering to evaluate their commercial objectives relative to applicable legal regimes.
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