Initial Coin Offerings: Table of Regulation (APAC, UK & US)

May 10, 2020

Jurisdiction	Recent developments and current approach
Abu Dhabi	Middle ground approach – ICOs potentially treated as securities, cryptocurrencies are commodities. The Financial Services Regulatory Authority released guidelines on ICOs and digital currencies on 9 October 2017 – stating that: ICOs may be viewed as securities depending on the circumstances; and digital currencies are not considered legal tender but rather as commodities and therefore remain unregulated.
Australia	Middle ground approach – legal treatment of ICOs may differ depending on its structure, unlikely to regulate cryptocurrencies in the near term. Australian Securities and Investments Commission has (on 28 September 2017) issued regulatory guidance for businesses considering ICOs – stating that legal treatment of ICOs will differ depending on the ICO’s structure, and different laws (including the Corporations Act and Australian Consumer Act) may then be applicable. “In some cases, ICO issuers may frame the entitlements received by contributors as a receipt of a purchased service. However, if the value of the digital coins acquired is affected by the pooling of funds from contributors or use of those funds under the arrangement, then the ICO is likely to fall within the requirements relating to MISs [managed investment schemes]. This is often the case if what is offered through the ICO has the attributes of an investment.” The Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2017 (passed on 13 December 2017 and coming into force on 1 April 2018) will apply to cryptocurrency exchanges. Specifically, AUSTRAC (the Australian financial intelligence regulator) will compel exchanges to register for a “Digital Currency Exchange Register”, while enacting KYC and transparency measures – including reporting of suspicious account activities and international transactions in excess of AUD10,000. Separately, the Reserve Bank has indicated that it would likely not support any rule-making in relation to blockchain networks or regulating cryptocurrencies in the near term. The Australian Tax Office is currently conducting external consultations with lawyers and tech, banking and finance experts on tax implications of cryptocurrencies.
China	ICOs and cryptocurrency exchanges currently banned. Blockchain development still encouraged. The People’s Bank of China announced a ban on domestic ICOs and cryptocurrency exchanges on 4 September 2017. Since that time, China has taken various measures in relation to cryptocurrency-related activities, including: planning to block domestic access to Chinese and offshore cryptocurrency platforms that allow centralised trading – such as OTC trading platforms and peer to peer networks; targeting entities and individuals that provide market-making, settlement and clearing services for centralised trading; and planning to reduce or prohibit bitcoin mining in China. Regulators have also moved to stop Chinese companies listed abroad from issuing ICOs (and thereby avoiding its domestic ban on ICOs). New York-listed Renren Inc. reportedly cancelled its overseas ICO after discussions with Chinese regulators. More broadly, blockchain investments remains encouraged by the government. For example: the Central Bank Digital Currency Research Institution (a research facility focused on blockchain and Fintech) began operating as a separate business unit within the People’s Bank of China in July 2017; the PBOC has continued to move forward with plans to adopt a state-backed digital currency and that may replace the central physical currency; in the government’s 13th Five-Year Plan for Economic and Social Development (in 2016), blockchain technology is listed as an important area for development; and the China Academy of Information and Communications Technology, a research institution under the Ministry of Industry and Information Technology, recently launched the Trusted Blockchain Open Lab.
Dubai	Middle ground approach but has warned investors of ICO risks. The Dubai Financial Services Authority (on 14 Sept 2017) warned investors of the “unique risks” in ICOs, and clarified that it “… it does not currently regulate these types of product offerings or license firms in the Dubai International Financial Centre (DIFC) To undertake such activities“. Separately, the Dubai government has signed a partnership to develop emCash, an encrypted digital currency that can be used to pay for various government and non-government services. The Central Bank of the UAE released regulations on 1 January 2017 stating that “all virtual currencies [and transactions thereof] are prohibited”. The Central Bank has since clarified that virtual currencies are not outlawed and announced that new regulations will be issued.
Hong Kong	Middle ground approach – ICOs may be treated as securities but bitcoins are likely treated as virtual commodities (rather than legal tender). Hong Kong’s position is largely similar to Singapore.The Securities and Futures Commission (on 5 September 2017) released a statement, stating that “… digital tokens that are offered or sold may be “securities” as defined in the Securities and Futures Ordinance (SFO), and subject to the securities laws of Hong Kong”. It also noted that cryptocurrency exchanges may be subject to SFC’s licensing and conduct requirements. On 11 December 2017, the SFC issued a circular reminding financial institutions that Bitcoin Futures have the conventional features of a “futures contract” as defined under the SFO. Accordingly, anyone dealing in Bitcoin Futures is required to be licensed. The SFC has recently: publicly commented that it has issued warnings to exchanges to take down cryptocurrencies that may be securities, without giving further details; and launched a campaign to educate the public on the risks associated with ICO and cryptocurrency investments – and commenting that it would rather educate the public than seek to ban cryptocurrency trading. The HKMA has previously (in February 2015) stated that it views bitcoins as a virtual commodity and not legal tender. The HK Fintech Association has recently released a useful guide on token/ICO issuances. Separately, there have been significant difficulties for cryptocurrency-related businesses in procuring bank accounts.
Japan	No prohibitions on ICOs but have warned investors of high risks. Recent financial services regulations have led to licensing of bitcoin exchanges. No prohibition on ICOs, though the Financial Services Agency (on 27 October 2017) published a statement underlining the “high risks” in relation to ICOs, including the volatility of tokens and fraud risks. Separately, following new financial services regulations that (amongst other things) recognise bitcoin as a legally accepted means of payment in Japan in April 2017, the FSA issued licenses to eleven Japan bitcoin exchanges, approving their operation under such regulations. Following the recent hack of Coincheck (a Japan cryptocurrency exchange), the FSA announced that it would inspect all cryptocurrency exchanges and ordered Coincheck to improve its internal operations.
Korea	ICOs currently banned, enforcement actions have been taken in relation to frauds. The South Korean Financial Services Commission outlined a policy banning ICOs on 29 September 2017. The FSC has also arrested various individuals for cryptocurrencies-related scams and theft. The FSC has more recently announced that, starting from 30 January 2018, anonymous trading on domestic exchanges will be banned while foreigners and minors would be completely banned from trading through cryptocurrency accounts. Cryptocurrency exchanges will also be subject to taxation, requiring exchanges with annual income over 20 billion won in 2016 to pay 22% corporate and 2.2% local income taxes. The South Korea Finance Minister has affirmed that the government will not ban (but will consider regulating) cryptocurrency trading in Korea.
Malaysia	Middle ground approach but has warned investors of ICO risks. Regulatory framework planned for cryptocurrencies and exchanges. The Securities Commission issued a warning to investors in relation to ICO risks on 8 September 2017. The Securities Commission has (on 7 November 2017) discussed that, in conjunction with Bank Negara Malaysia, it is planning a regulatory framework for cryptocurrencies, including licensing of cryptocurrency exchanges. On 17 December 2017, the Central Bank of Malaysia published draft rules for cryptocurrency exchanges operating in Malaysia.
Philippines	No official statement on ICOs. Bitcoin exchanges have been licensed. While the Philippines Central Bank has issued no official statements on ICOs, they have licensed two local bitcoin exchanges in August 2017 – following rules being released for domestic exchanges in February 2017. The Philippines Central Bank and Securities and Exchange Commission are considering how to regulate ICOs.
Singapore	Middle,ground approach. New framework to be developed for regulating,cryptocurrencies and exchanges. Regulators becoming more aware of,cryptocurrencies and considering regulation. The Monetary Authority of Singapore,has (on 14 November 2017) released “A Guide to Digital,Token Offerings“,– stating that tokens sold through an ICO may,be considered securities under certain circumstances. This Guide is worth reviewing – amongst other things, it includes several case studies, illustrating their views on whether,certain situations fall under securities or other relevant laws. MAS also indicated that it would develop a new,payments service framework, covering companies involved in “… the dealing or exchange of virtual,currencies for fiat or other virtual currencies”. MAS has stated that it will not distinguish transactions conducted,in fiat and cryptocurrency in enforcing anti-money laundering and counter,terrorist finance laws. Members of the Singapore parliament have recently asked the Prime Minister in relation to cryptocurrency regulations.
Thailand	Middle ground approach – ICOs may be securities, actively seeking private sector input into future regulatory approach. The Securities and Exchange Commission issued a statement on ICOs on 14 September 2017 – stating that while some ICOs may resemble securities, they are also “… considering appropriate approaches on ICO and welcomes comments and suggestions from the private sector”. The Securities and Exchange Commission in Thailand has allowed Thai investors to trade Bitcoin Futures while stating that Bitcoin Futures were subject to regulation as a futures contract.
United Kingdom	Middle ground approach The UK Financial Conduct Authority has previously (on 12 Sept 2017) released brief guidance on ICOs – noting that they are high-risk, speculative investments. Whether they fall under the FCA’s authority will be determined on a case-by-case basis, including in relation to whether they are regulated investments. Both the UK and EU (in Nov 2017) commented that they are planning new legislation to apply AML/KYC rules to cryptocurrency exchanges and traders. These have been backed by recent comments from the UK Prime Minister, stating that they will look into the use of cryptocurrencies by criminals.
USA	Regulators increasingly taking action against ICOs. The SEC has been increasingly active in taking actions against ICOs, particularly those involved with fraud or where securities have been sold without being in compliance with securities-related laws. The SEC (and the CFTC) has also been increasingly prominent in making public comments about this area, including: warning issuers and advisors of ICOs, including lawyers who have been advising on ICOs challenging the notion of a “utility” token, noting that they may not exist and that ICO tokens are likely to be securities by nature; warning against the use of celebrities to promote ICOs; and,commenting on whether the cryptocurrency industry should consider self- regulation, while expressing a relatively open mindset towards cryptocurrencies.