The Australian ICO frontier: Should Asian founders look to Australia for an ICO?

Photo credit: Paul Carmona

Disclosure: The author of this post is not affiliated with any of the organizations mentioned in this article.

In October 2017, Australian blockchain startup Power Ledger raised US$26.6 million from an ICO, the first ever ICO in Australia. The startup uses blockchain to build decentralized solar and wind energy trading, and its founder became the mayor of Perth shortly after its ICO.

With the Australian Securities and Investment Commission (ASIC) issuing regulatory guidance in September 2017, it seemed a fitting time to survey Australia’s ICO scene. Should Asian founders look to Australia for an ICO in 2018?

Global ICO regulations

After China banned ICOs in September 2017, alarm bells rang for some. For others, this was a necessary market correction to weed out scams in the unregulated Chinese market. Celebrated Chinese projects like Neo (China’s first open source blockchain) had to offer a refund for all the Neo tokens obtained through previous ICOs.

In July 2017, the US Securities and Exchange Commission (SEC) took a regulatory approach warning that US securities laws applied to ICOs. While Korea has also banned domestic ICOs, Japan has been warm to cryptocurrencies and reportedly aims to launch an electronic currency pegged to the yen. Taiwan has also expressed support for ICOs.

So, when ASIC made its statement on ICOs, observers were divided.

See: Everything you wanted to know about ICOs but were too afraid to ask

Australia’s regulatory environment in flux?

Weeks after China’s government banned ICOs, ASIC released an Info Sheet for Australian investors participating in the practice.

The statement clarified that the legal status of an ICO depends on the rights attached to the token. It could be a share offering, a derivative, a managed investment scheme (MIS), or a non-cash payment facility. Although an ICO can be seen as a form of crowdfunding, ASIC clarified that it will not be covered by the crowdsourced funding (CSF) regime.

UTS lecturer Dr. Philippa Ryan wrote, “Australia’s new approach is markedly different than the path of regulators in other countries.” Importantly, if an ICO is judged as an MIS (a pooling of assets), then the operator will need to comply with a range of disclosure, registration, and licensing obligations under the Corporations Act.

With the new regulations, an ICO may now be subject to general Australian consumer laws or the Corporations Act, depending on what rights are attached to the token. These rights are generally outlined in an ICO’s white paper, which means there will be more regulatory uncertainty.

Yet ASIC and other regulators will continue to define ICOs, and the legal terms and conditions will likely evolve further. But unlike the initial global gold rush, investors may be more selective in their investments.

Response

Some have suggested that there are two camps on the ASIC Info Sheet:

Innovative regulations for ICOs

Growing interest in Australian ICOs