The Way Forward
The difficulty in classifying digital tokens or coins is the fact that even if coins’ primary purpose is to provide access to goods or services via a platform, once they are listed on a trading exchange, they may also be traded by speculators for the purpose of profit taking. Whether that alone should bring a coin within the definition of “securities” is arguable.
There are clearly risks associated with ICOs. Quite apart from the risks of fraud and theft, the project may never be completed and coin holders stand to lose their investment. Coins would not in most cases give holders any contractual rights against the coin issuer or any rights on its insolvency. Offers are not generally restricted to professionals deemed sufficiently sophisticated to assess the risks of investment. The disclosure made in white papers is not subject to any particular standards or scrutiny. Whether regulators choose to clamp down on coin offers will probably depend on the perceived risk to retail investors in particular jurisdictions.
There are clearly arguments both for and against regulation of ICOs. While greater legal certainty would be welcome, there have been calls to ensure that any regulation imposed should not be overly onerous. Many, although not all, ICOs are involved in the development of blockchain-based technology and applications which will offer substantial improvements in efficiency. The danger of over-regulation is that technological innovation may be stifled and there have already been criticisms of China’s clampdown on cryptocurrencies as stifling their development and diminishing China’s once dominant position in the cryptocurrency revolution. 
Other concerns relate to money laundering and terrorist financing. Since most exchange operators in Hong Kong are currently unlicensed, one possibility would be to impose AML and CTF obligations on exchange operators since this is the point at which the worlds of fiat currencies and cryptocurrencies intersect.
Many ICO issuers and crypto exchanges are adopting best practices which are both in the best interests of potential coin purchasers and also serve to distinguish legitimate players from the Ponzi schemes and fraudulent exchanges which have dogged the industry in some jurisdictions. Self-regulation is all well and good, but it fails to provide sanctions for those who do not comply. Many in the crypto market, both exchanges and issuers, would welcome balanced regulation as a means of giving cryptocurrencies legitimacy. Investment in cryptocurrencies remains dominated by individual investors. If cryptocurrencies are to attract institutional investors, they probably require the legitimacy that regulation would provide.
Note: The above represents Charltons’ current understanding of the regulation of ICOs in different jurisdictions. Charltons advises only on Hong Kong law and while the above represents our understanding of the legal position in certain other jurisdictions, legal advice from qualified lawyers in the relevant jurisdictions should be sought in relation to any particular transaction or situation. Further, this note is intended for educational purposes and it does not constitute Hong Kong legal advice. Specific advice must be sought in relation to any particular situation.