Regulators warn of risks of investing in ‘highly speculative’ ICOs

ASIC has released guidance for firms undertaking initial coin offerings, warning of their “highly speculative” nature.

ASIC has appointed Joanne Harper as its permanent CIO. Picture: Britta Campion

The corporate regulator ASIC today released guidance for businesses that undertake initial coin offerings (ICOs), amid fears of an asset bubble.

An ICO is a form of internet-based crowd-funding that can be a source of capital for start-ups, with organisations offering digital coins such as bitcoin in return for investment.

Though an increasingly popular fundraising method for cryptocurrency based start-ups (with celebrity endorsements coming from the likes of boxing champion Floyd Mayweather), the space is largely unregulated and ASIC is warning investors have a high chance of losing their cash.

“We want to ensure innovative firms understand the regulatory framework they may be operating under and ensure they meet any obligations they may have when raising funds in Australia,” ASIC Commissioner John Price said in a statement.

“ICOs are highly speculative investments, are mostly unregulated, and the chance of losing your investment is high.

“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.

“An ICO must be conducted in a manner that promotes investor trust and confidence, and complies with the relevant laws.”

ASIC said whether or not the Corporations Act applies to a particular ICO will vary.

Countries across the globe have taken different tacts — the US Securities and Exchange Commission warned in July that some ICOs should be regulated like other securities. Singapore and Canada followed with similar warnings, while China banned ICOs this month.

“In Australia, the legal status of an ICO is dependent of the circumstances of the ICO, such as how the ICO is structured and operated, and the rights attached to the coin (or token) offered through the ICO,” ASIC’s guidance says.

“In some cases, the ICO will only be subject to the general law and the Australian consumer laws regarding the offer of services or products. In other cases, the ICO may be subject to the Corporations Act.”

Last month, Australia had its first ICO raise, with Perth-based start-up Power Ledger raising $17 million and the pre-sale selling out in three days.

While no official global fundraising figures are available, New York-based research firm Smith & Crown estimated that coin offerings this year have raised more than $US1 billion as of early July.

In related news ASIC appointed Joanne Harper as its permanent Chief Information Officer on Monday; Ms Harper had been acting in the role since February when former CIO Wendy Bryant moved to the Australian Taxation Office.

With Dow Jones