Australia was one of the first countries to issue guidelines to investors in crypto currencies with the release by the Australian Securities and Investments Commission’s (ASIC) of information sheet INFO225 on 28 September 2017 (Information Sheet).
In October 2017, Lavan published an article titled ‘Initial Coin Offerings – What are your rights? What are your obligations?'
Since then, there has been further fund raising activity through initial coin offerings (ICO), and the establishment of other crypto currency businesses and digital token businesses. For example, in October last year, PowerLedger raised $34 million from over 15,000 buyers through an ICO.1 On 23 March 2018, online gambling business NEDS published its white paper in which it outlines its plans to raise $60 million through the issue of tokens.2
On 19 April 2018 ASIC received a delegation of power from the Australian Competition and Consumer Commission (ACCC) that enables ASIC to take action under the Australian Consumer Law (ACL) where there is potential misleading and deceptive conduct in relation to crypto-assets.
ASIC has already issued inquiries to ICO issuers and their advisers where ASIC has identified conduct or statements that may be misleading or deceptive, or there may have been potentially unlicensed conduct. According to an ASIC press release on 1 May 2018, some issuers have halted their ICO, or have indicated to ASIC that the ICO structure will be modified as a result of ASIC's inquiries.3
At the same time, on 1 May 2018, ASIC released an update to the Information Sheet to provide guidelines to entities that are considering fund raising through an ICO and other crypto currency businesses or digital token businesses.4
ASIC stated in the Information Sheet that issuing and trading of crypto-assets must be conducted in a manner that promotes consumer trust and confidence and complies with relevant Australian laws.
A key issue identified in the Information Sheet is that the application of Australian law prohibits misleading or deceptive conduct in trade or commerce, in connection with financial services, and in relation to financial products. The prohibition on misleading or deceptive conduct is likely to apply to any ICO or any crypto currency business, regardless of whether the activity is in connection with financial or non-financial products.
The Information Sheet provides useful guidelines as to what may be deceptive and misleading conduct - that can include:
For ICO’s and crypto assets that are financial products, the general law as well as the Corporations Act 2001(Cth) (Corporations Act) applies. This will determine the type of information that must be provided to consumers and investors, and also whether the issuer must hold a financial services or other license.
The Information Sheet makes clear that whether the Corporations Act applies to an ICO or a crypto-asset will depend on the nature of the crypto asset or the ICO offering. A mere statement by the issuer that the ICO offering or token is not a financial product, or is described as a digital asset, does not in itself mean such offering or token is not a “financial product” for the purposes of the Corporations Act. Therefore, the Corporations Act is likely to apply to many ICO offerings or tokens, despite issuers claiming that the relevant token is not a financial product.
In the Information Sheet guidelines have been published with respect to different types of ICO’s and whether they have the attributes of typical forms of offering, such as:
The Information Sheet also sets out the relationship between ICO’s and crowd source funding.
Where an ICO token or crypto-asset is a financial product, any platform that enables consumers and investors to sell these tokens or crypto assets may involve the operation of a financial market, and the platform operator may require an Australian market licence.
ASIC has engaged with businesses on proposals for financial products that invest in crypto-assets or otherwise expose consumers or investors to crypto-assets. Those businesses must consider whether they will provide a financial service in relation to the proposed financial product and may require a new or varied licence to provide such financial services.
Businesses should take care when proposing to issue financial products that are associated with crypto-assets, and seek appropriate legal advice prior to undertaking such activity. This should be done at an early stage, to ensure that if the ICO token or crypto-asset is identified as a financial product, the correct information is provided to investors, and if necessary, the appropriate licence obtained. This is best done by partnering with your legal team at an early stage.
The guidelines should not deter businesses from considering using ICO’s and crypto currencies for fund raising. Involvement of ASIC in this space should be welcomed, as it is likely to increase the level of trust held by consumers and investors when considering whether to invest in these novel products.
 Power Ledger, ‘Power Ledger named in Top 10 Extreme Tech Challenge (XTC) companies to appear at CES 2018’ (Press Release, 15 November 2017).
 NEDS, ‘nedscoin Whitepaper’ (23 March 2018)
 Australian Securities and Investments Commission, ‘ASIC takes action on misleading or deceptive conduct in ICOs’ (Media Release, 18-122MR, 1 May 2018).
 Australian Securities and Investments Commission, Initial coin offerings and crypto-currency (1 May 2018) ASIC