In what could turn out to be good news for the latest Initial Coin Offerings (ICO) trend, UK’s Financial Conducts Authority (FCA) has said that many ICOs fall outside the regulated space.
According to a statement issued by the FCA, while the question of whether an ICO falls within the FCA’s regulatory boundaries or not can only be decided case by case, there are many ICOs that do fall outside the regulated space.
However, depending on how they are structured, some ICOs may involve regulated investments and firms involved in an ICO may be conducting regulated activities.
Some ICOs have features that parallel Initial Public Offerings (IPOs), private placement of securities, crowdfunding or even collective investment schemes. Some tokens may also constitute transferable securities and therefore may fall within the prospectus regime.
This effectively means that businesses involved in an ICO should carefully consider if their activities could mean they are arranging, dealing or advising on regulated financial investments.
Promoters of the ICOs need to consider whether their activities amount to regulated activities under the relevant law. Further, digital currency exchanges that facilitate the exchange of certain tokens should consider if they need to be authorised by the FCA to be able to deliver their services.
This brief general guidance does not provide much assistance in specific cases, but appears to lay a general tone by FCA that not all ICOs fall within their jurisdiction, suggesting FCA may take a more nuanced approach.
The statement was made in the context of a consumer warning regarding ICOs. FCA says that the space is unregulated, without investors protections, experiencing considerable price volatility as well as offering opportunities for scams and fraud because most ICO projects are at an early stage.
They further added that instead of ICOs offering a regulated prospectus, they usually only provide a ‘white paper’. An ICO white paper might be unbalanced, incomplete or misleading. A sophisticated technical understanding is needed to fully understand the tokens’ characteristics and risks.