Regulation of Cryptocurrency and Initial Coin Offerings (ICOs) in Australia
In October 2017, Australia’s Securities and Investments Commission (ASIC) released an information sheet  which provides information on, among other things, when ICOs will be considered an offer of a financial product and subject to the provisions of Australia’s Corporations Act. The statement stresses that the legal status of any ICO token will depend upon the nature of the ICO and the circumstances of the offer. An ICO will constitute an offer of a financial product if it is a managed investment scheme, offer of shares or a derivative. An arrangement will be considered a managed investment scheme when:
- people contribute money or assets (such as digital currency) to obtain an interest in the scheme (‘interests’ in a scheme are a type of ‘financial product’, regulated by the Corporations Act);
- any of the contributions are pooled or used in a common enterprise to produce financial benefits or interests in property; and
- contributors do not have day-to-day control over the operation of the scheme but, at times, may have voting rights or similar rights.
The rights attached to the tokens issued in an ICO will need to be analysed to determine the legal status of an ICO. Rights include future or contingent rights and rights which are not legally enforceable.
Following amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act which took effect on 3 April 2018, digital currency exchanges (DCEs) are required to comply with AML/CTF requirements in respect of transactions involving fiat to cryptocurrency trading. DCEs’ obligations in respect of such transactions include:
- adopting and maintaining an AML/CTF program to identify, mitigate and manage money laundering and terrorism financing risks;
- identifying and verifying the identities of their customers;
- reporting to the Australian Transaction Reports and Analysis Centre (AUSTRAC), the anti-money laundering and counter-terrorism financing regulator in Australia, suspicious matters and transactions involving physical currency of $10,000 or more; and
- To keep certain records for seven years.
A ‘policy principles’ grace period will be in place until October 2018, where AUSTRAC will only have a right to take an enforcement action if a DCE fails to take reasonable steps to comply . Transitional registration arrangements are in place for the period during consideration of the businesses’ registration applications. After the policy principles period concludes, provision of DCE services without registration will be considered a criminal offence.
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.