The Australian Securities and Investment Commission (“ASIC”) has released further guidance on initial coin offerings (“ICOs”) and cryptocurrency compliance through its updated Information Sheet 225 (“Info 225”). ICOs are a new form of internet based capital-raising using cryptocurrencies to purchase digital coins or tokens known as ‘crypto-assets’. With regulation struggling to keep pace with this growing area of the financial services market, Info 225 gives greater clarity on the legal status of ICOs and crypto-assets in Australia.
Info 225 states that crypto-assets and ICOs will be subject to the general law, including prohibitions against misleading and deceptive conduct under either the Australian Consumer Law or the Corporations Act 2001. The latter also regulates financial products, which include some forms of crypto-assets or ICOs. Info 225 lists the following examples of conduct that ASIC may consider to be potentially misleading or deceptive:
- the use of social media to generate the appearance of a greater level of public interest in an ICO;
- undertaking or arranging for a group to engage in trading strategies to generate the appearance of a greater level of buying and selling activity for an ICO or a crypto-asset;
- failing to disclose adequate information about the ICO; and
- suggesting that the ICO is a regulated product or the regulator has approved the ICO if that is not the case.
Info 225 also notes that ASIC is empowered to take action against potential misleading or deceptive conduct. Businesses trading in crypto-assets should be aware that Australian law and regulations can apply even if the ICO or crypto-asset is issued or sold by a foreign entity.