ICOs: real
deal or token
gesture?
Exploring Initial
Coin Offerings
© The Association of Chartered Certified Accountants
February 2018
About this report
This report explores Initial
Coin Offerings (ICOs)
including what they are
and how the relate to
professional accountants.
FOR FURTHER INFORMATION:
Narayanan Vaidyanathan
Head of Business Insights
@
About ACCA
ACCA (the Association of Chartered Certified Accountants) is the global
body for professional accountants, offering business-relevant, first-choice
qualifications to people of application, ability and ambition around the world
who seek a rewarding career in accountancy, finance and management.
ACCA supports its 200,000 members and 486,000 students in 180 countries, helping them to
develop successful careers in accounting and business, with the skills required by employers.
ACCA works through a network of 101 offices and centres and more than 7,200 Approved
Employers worldwide, who provide high standards of employee learning and development.
Through its public interest remit, ACCA promotes appropriate regulation of accounting and
conducts relevant research to ensure accountancy continues to grow in reputation and influence.
ACCA is currently introducing major innovations to its flagship qualification to ensure its
members and future members continue to be the most valued, up to date and sought-after
accountancy professionals globally.
Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity,
innovation, integrity and accountability.
More information is here:
Over the past few years, there has been a significant increase in the level of activity in respect of
blockchain and distributed ledger technologies.
We have seen an evolution from concept
stage discussions, to proofs of concepts,
leading to minimum viable products and
the on-going work towards full-scale
production mode solutions.
A big enabler of this has been the influx
of funding for innovations and ideas in
this area. These funds have certainly
come from many traditional sources like
banks and venture capital funds.
However, there has also been a sudden
upsurge in the use of alternative avenues
like Initial Coin Offerings (ICOs) as a
mechanism for funding. And this raises
questions about existing safeguards and
level of preparedness for these new
funding sources.
As a result, the debate is now, rightly,
about regulation and risks, as much as it
is about scaling and value. In a world
where technology innovations can occur
at a pace that is frankly bewildering to
many onlookers, the need to protect the
market from unscrupulous actors has
never been greater. While ICOs can
provide a legitimate avenue to drive
innovation in some instances, it is
extremely important that the protection
of the ordinary investor is carefully
considered as we look ahead.
3
Foreword
The accountancy profession is rightly
expected to build ethics and public trust
and ACCA remains firmly committed to
helping our members provide objective,
professional and informed inputs to drive
sustainable economic growth.
This report shines a light on a new area,
as it is unfolding in real-time, and is part
of our commitment to preparing our
members and the profession as a whole
for the fast-emerging challenges and
opportunities of the future.
Helen Brand OBE
Chief executive
ACCA
Contents
Executive summary 5
1. Background 6
Basic idea 6
The origins 7
Going mainstream 8
Launching an ICO 9
2. Risks 10
Risks for investors 10
Risks for regulators/economies 11
Risks for technology and innovation 12
Risks for cryptocurrencies, blockchain and distributed ledgers 12
3. Regulation 13
4. ICOs and the professional accountant 16
Conclusion 19
Appendix 20
ICO regulatory pronouncements by country 20
Summary of regulators’ statements 28
Resources 30
References 32
An Initial Coin Offering (ICO) is a new way for organisations to raise capital. In an ICO investors
receive ‘coins’ (or tokens) in exchange for a payment, made in a cryptocurrency rather than a fiat,
ie, government-backed currency. The coins or tokens represent the investment in the project.
5
In the last six months of 2017, Initial Coin
Offerings (ICOs) gained increasing
attention from investors, businesses,
media and regulators. The volume of
ICOs accelerated rapidly in this period:
funds raised in 2017 (equivalent to $4bn)
were 40 times those raised in 2016. ICOs
have become popular, because of the
ease with which they can be used by
businesses to obtain new, public funding,
but with less complexity and greater
speed than traditional methods.
An ICO investment is made using a
cryptocurrency and investors get tokens
(or ‘coins’) rather than ‘shares’. As a result,
many ICOs have so far fallen outside
existing securities regulation. But,
unsurprisingly, most regulators have
started to take a close interest at this
developing market. The majority of
regulators have issued warnings to
investors about the risks of these
investments, and many have indicated
that the unregulated status of ICOs is
under scrutiny and may be short lived.
While their regulatory status is being
considered, the rapid increase in
underlying cryptocurrency values has
further stoked investor interest. With the
lure of high short-term gains, the ICO
market is looking increasingly like a
bubble. Bitcoin, the most established
cryptocurrency, and the typical
investment vehicle for ICOs, increased in
value by 1,804% over the course of 2017.
Early ICOs were focussed on new,
innovative developments in blockchain
technologies (on which cryptocurrencies
such as bitcoin are based). However, the
rapid increase in interest in ICOs has led
to a much broader scope of offering, and
organisations have turned to ICOs to raise
money, owing to the simplicity and speed
with which this can be done, irrespective
of the purpose. In future, it will be essential
to ensure that misuse of the original ICO
concept does not block investment for
genuine technological innovation.
There are risks to ICOs, especially for
investors, who can easily lose their
investment or fall victim to a scam. There
are also wider risks to consider, such as
their being used as vehicles for money
laundering. The increased attention from
regulators means more scrutiny for
organisations undertaking ICOs; the SEC
in the US has been active in this area and
has already identified some ICOs which
are not acceptable to it, and has put a stop
to their fundraising. In future, organisations
will need to tread carefully when looking
at this avenue for raising funds.
The landscape for ICOs provides an
interesting environment for professional
accountants, with opportunities for
new and enhanced service offerings to
guide organisations seeking funding.
The changing landscape also means
there are plenty of risks and a range of
ethical issues to consider. ICOs are at
the forefront of emerging technology
in blockchain and distributed ledgers,
and professional accountants need
to maintain an awareness and
understanding of the underlying issues.
Executive
summary
BASIC IDEA
An Initial Coin Offering (ICO) is a new way
for organisations to raise capital. In an
ICO, investors receive coins (or tokens) in
exchange for a payment, made in a
cryptocurrency rather than a fiat currency.
The coins or tokens received represent
the investment in the project.
Like an Initial Public Offering (IPO), an
ICO can be used to raise funds, but unlike
an IPO, it is less familiar to regulators.
However, the association of ICOs with
cryptocurrencies, in particular Bitcoin and
its very rapid growth in value in the last
quarter of 2017, has attracted increased
scrutiny from regulators around the world.
In an ICO, sometimes called a ‘token sale’,
instead of receiving shares, participants
receive ‘tokens’ and instead of paying
cash, participants pay in cryptocurrency,
typically bitcoin or ether. ICOs are a form of
Crowdfunding, but are distinct because of
the ‘token’ offered and the cryptocurrency
payment. In addition, a Crowdfunding
initiative is often for businesses that are
relatively advanced in development with
tangible market potential.
There was a dramatic increase in ICO
activity in 2017, fuelled by the ease and
simplicity with which businesses can use
an ICO to obtain funding for new ideas,
and buoyed by a community with the
1. Background
6
1 For example, Forbes, Fortune, , Huffington Post, Tech Crunch, Wired.
2 <
FIGURE : Monthly new ICO funding
Source:
expectation of rapid, large investment
returns (Figure ). Research from
Mangrove shows that the total-return on
ICOs has been 13 times the initial
investments made (Mangrove Capital
Partners 2017). An increasing number of
ventures have been launched using ICOs,
with a corresponding flood of individuals
prepared to invest in these schemes.
This increased activity has caught the
attention, not just of those directly
involved, but also that of the
cryptocurrency and blockchain
communities (see Appendix), and
mainstream business A Financial
Times article in November 2017 summed
the situation up: ‘When celebrities known
more for reality shows than financial
prowess start endorsing a particular
investment strategy, it is fair to assume a
bubble exists’ 2 (Binham, 2017). So while
the Mangrove return figure of 13x looks
impressive, much of this has been driven
by increased value of the underlying
cryptocurrencies such as Bitcoin.
$800m
$700m
$600m
$500m
$400m
$300m
$200m
$100m
$0m
Jan ‘14 Jun ‘14 Nov ‘14 Apr ‘15 Sep ‘15 Feb ‘16 July ‘16 Dec ‘16 May ‘17 Oct ‘17
7
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | 1. Background
As a result, ICOs have received
considerable attention in 2017 as
regulators have stepped in (see Chapter
3 on Regulation) to determine whether
ICOs are, or are not, in reality, an offer
of securities, and so whether securities
regulations apply, such as the need for a
prospectus. Regulator involvement stems
from increased concern about the risks to
investors (for more on this see Chapter 2
on Risks). Increasingly, these concerns are
that a significant bubble is forming, ie an
over-valuation of cryptocurrencies.
Bitcoin’s value fell by 36% in just a week
in mid-December 2017, though it has
since recovered to 70% of its all-time
high (see Figure below).
Regulator involvement stems from
increased concern about the risks
to investors. Increasingly, these
concerns are that a significant
bubble is forming, ie an over-
valuation of cryptocurrencies.
FIGURE : The changing value of Bitcoin 2017–18
THE ORIGINS
Most early ICOs were a mechanism for
developing new functionality on top of
the bitcoin blockchain or one of the other
cryptocurrency platforms built on
blockchain. Initially, this was a contained
market: an idea for a new project was
proposed and the person or group
behind the idea put forward a proposal
for developing the concept. They paid
programmers for their work in writing the
computer code to make the project a reality.
The people doing the work would be
paid in cryptocurrency that contributors
had handed over in the hope the project
would be successful. All three groups
– the innovators, the investors and the
programmers – understood blockchain
and cryptocurrency, so they could make
a decision easily about the viability of the
idea, the likely success and the degree
of effort to get it working. In this way,
it is a specialised form of Crowdfunding,
but with participants taking payments
in cryptocurrencies.
As part of the ICO, the investors got
tokens in exchange for an existing
cryptocurrency: typically, either bitcoins
or ether. The tokens were generally
another, new, cryptocurrency based on
the same controlling logic as bitcoins –
the blockchain ledger; if the venture was
successful these new ‘coins’ would
become valuable and a market to trade
them would develop. If the venture was
unsuccessful, then the tokens would have
no value. Ideas that had more potential
would get more attention, and more
readily secure investment.
Bitcoin MarketCap 2017–18. Source:
$400B
$320B
$240B
$160B
$80B
$0B
16B
0
6 Feb 20 Mar 1 May 12 Jun 24 Jul 4 Sep 16 Oct 27 Nov 8 Jan
M
ar
ke
t C
ap
24
h
Vo
l
$25,
$20,
$15,
$10,
$5,
$0B
Price (U
SD
)
8
GOING MAINSTREAM
The frenzied investment in the latter half
of 2017 is indicated by research from
Bloomberg, which found that the best
investment returns among the 30 biggest
value ICOs in 2017 were from those that
did not have a working product backing
their scheme (Russo and Kharif 2017).
Bitcoin, the best known and largest
overall value cryptocurrency ($97bn3),
was launched in 2009. The following years
saw a trickle of cryptocurrency additions.
Since 2014 there has been an enormous
increase in new coins, and there are now
over 1,200 active cryptocurrencies. A key
driver for the growing number of
cryptocurrencies has been the increase
in ICOs, and this has been driven partially
by the rapidly increasing value of
cryptocurrencies.
Booming prices of cryptocurrencies have
driven uncontrolled speculation. Even
with the volatility shown in late 2017,
since its peak in mid-December, bitcoin
has increased in value in the year to 8
January 2018 by 1,804%.3 In December
2017 two US exchanges started trading
bitcoin futures, in response to demand
from professional investors.
The first ICO was in 2013 for Mastercoin,
and was based on an idea for extending
the capability of the bitcoin network
A key driver for the growing
number of cryptocurrencies has
been the increase in ICOs, and
this has been driven partially
by the rapidly increasing value
of cryptocurrencies.
(Zynis 2013). The concept was to involve
developers in helping write bitcoin
extensions by offering them a share in
the ownership of the new developments.
Over a month in summer of 2013, just
over 500 people sent bitcoins, worth
around $500k at the time, to a special
bitcoin address (Coindesk 2013,)4.
They received 100-times the number
of Mastercoin in exchange for the
bitcoins they sent, plus some extra for
early investors. In total 563k Mastercoin
were issued, with an additional 10%
retained to pay for future developments.
These Mastercoin (now called
Omni) are tradable and currently have a
market capitalisation of approximately
$48m (CoinMarketCap live feed).
Most ICO-created cryptocurrencies have
a capped volume of ‘tokens’ or ‘coins’
from the outset, the expectation being
that, if the project succeeds, the coins
will become more valuable.
Mined cryptocurrencies have a tradeable
value, and are used to invest in ICOs. ICO
currencies are (generally) ‘created’ in one
go, rather than being mined. Although
Mastercoin was the first ICO, better known
is Ethereum, which launched the ether
cryptocurrency in 2014. The Ethereum
ICO netted 31,591 bitcoins (then around
$18m) in exchange for 60m ether tokens.
Since 2014 there have been an increasing
number of ICOs primarily seeking ether
or bitcoin contributions in exchange for
tokens in a new venture. In 2017 an
estimated $ was invested in 235
ICOs (CoinSchedule .): very large
amounts, but still small in comparison with
the $226bn raised from high-yield bonds in
2016 (Duncan 2017). Nonetheless, in June
2017 the bitcoin news website Coindesk
calculated that ICOs had overtaken
venture capital as the primary funding
source for development in the blockchain
sector (Sunnarborg 2017). ICOs had
therefore become the major funding
vehicle for their intended purpose.
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | 1. Background
3 Bitcoin price 12 January 2017 stood at $ while on 12 January 2018 it stood at $13, <>.
4 < and <
own-currency/#2d4284c57909>.
Bitcoin is a ‘mined’
cryptocurrency
Although the total number of bitcoins
has a ceiling (21 million) they are
created gradually over time, and at a
slowly diminishing rate. Bitcoin miners
race to create them by solving the
next ‘link in the chain’, which is done
by applying a series of computational
algorithms. These computations
involve an element of trial and error,
so performing them is a slow,
laborious and uncertain process.
The algorithm process is used to
regulate the rate at which blocks,
and therefore coins, are created.
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | 1. Background
This report explores the risks
associated with ICOs, explains how
regulators have responded and the
future prospects for ICOs. It also
outlines the implications of ICOs
for the professional accountant.
LAUNCHING AN ICO
The mechanism for an ICO is remarkably
simple, and so provides a low barrier to
entry. ICOs raise money by issuing a
‘white paper’ that provides details of the
concept that the venture intends to build,
and details of the tokens that will be
issued in exchange for cryptocurrency.
The white paper is available via the
venture’s website, which also provides the
mechanism for payment of cryptocurrency
to the venture’s account (typically bitcoin
or ether). It is now more common for
payments to be made into an escrow
account, to provide greater assurance of
the venture’s validity. Most ICO sites
include instructions for how investors
should go about buying their bitcoins or
ether – the assumption being that they
don’t already own any cryptocurrency.
This is where the regulatory issues arise;
because the ICO issues a currency, or token,
rather than shares, they have not been
considered (by proposers) to be a securities
offering, so the associated regulation and
controls have not been applied.
The increase in ICOs has expanded
initiatives well beyond blockchain
developments to encompass many
different start-ups, and this expansion has
increased the concerns about their status
and risks. A browse through open ICOs at
the time of writing (Smith & Crown 2016)
shows the projects displayed in Table .
ICO DESCRIPTION
Blockchain protocol for digital insurance
Double-entry accounting and billing services on blockchain
for supply chains
A distributed platform for a public, interactive virtual world
A visual searching tool for patents
A decentralised and incentivised collaborative music
social network
(See Appendix for links to registers of open ICOs.)
The perceived over-enthusiasm about
ICOs and their broadening beyond
blockchain-based initiatives has
heightened the attention from regulators.
It is easy to see why, when a ‘spoof’ ICO
(Useless Etherium Token) is claimed to
have raised $100k from a comical website
( Some might
argue that speculation has reached a
level reminiscent of the bubble.
Notwithstanding the scrutiny of
regulators, ICOs are seen as a simple,
inexpensive way for start-ups to raise
money; whether for blockchain or other
9
development. The core concept is that
technologies based on a blockchain
foundation have the potential to drive a
completely new wave of technical change
that will be even more significant than the
changes the internet has brought to date.
Blockchain is a distributed ledger, where
transactions between counterparties are
authenticated and recorded.
This report explores the risks associated
with ICOs, explains how regulators have
responded and the future prospects for
ICOs. It also outlines the implications of
ICOs for the professional accountant.
TABLE : Open ICOs at the time of writing
10
Understanding the risks and issues, perceived and evidenced, around ICOs provides context
for the increased regulatory involvement. This chapter looks at risks in relation to each party
involved in the ICO chain.
RISKS FOR INVESTORS
Most statements from regulators have
included alerts to prospective investors,
warning them of the potential dangers of
investing in ICOs; and the majority of
regulators have now issued some alerts
about ICOs.
Fraudulent investments
Fraud is the most consistently identified
risk. Publicity about the rapidly increasing
values of cryptocurrencies has contributed
to the surge in activity, so it’s not surprising
that ICOs are a potentially easy way for
fraudsters to make money. When large
numbers of people see an opportunity
to make a fast return and don’t want to
miss out on ‘the next big thing’ it attracts
players with dishonest motives. This
scenario is, understandably, heightened
by the anonymous elements of the
underlying blockchain distributed ledger.
Details of the location of many of the
organisations behind the ICOs are often
vague. The nature of ICOs is that they are
often ‘virtual’ entities, with just a website,
and no specific geographic location.
Those investing outside their local
country lack familiarity with the business
environment and its regulation in the
country where the ICO’s actors are based.
This separation of investor and investee can
make it hard to validate authenticity and
also means that if a scheme does collapse,
it can be difficult, if not impossible, to
trace the scheme’s operators.
Some ICOs, sensing this caution, are now
using escrow accounts to give investors
increased confidence that their money is
secure. A few Ponzi schemes involving
virtual currencies have been uncovered.
OneCoin is an example that purported to
sell educational material that it packaged
with ‘tokens’. It was halted in April this
year after more than $350m had been
invested (Suberg 2017).5
By nature, ICOs tend to be launched by
organisations that have no track record;
these are typically young, small,
inexperienced start-ups. The failure rate
among start-ups always tends to be high,
and when an ICO is issued without the
rigour that goes with a security offering –
such as an approved prospectus – failures
are likely to be more common, and
certainly more damaging to investors.
2. Risks
All the regulatory alerts aimed at
consumers direct these potential investors
to think carefully about what they are
investing in and whether they understand
the business model enough to judge its
viability. This itself raises the question of
investor knowledge, sophistication and
appreciation of risk, especially given the
additional complexity of cryptocurrency
and distributed ledger technology.
Liquidity risks
Even if a secondary market exists for
digital tokens, there is often a lack of
buyers and sellers, so there are likely to
be wide bid-ask spreads. In extreme
situations, digital tokens may not be
saleable. Where a secondary market does
exist, it may be unregulated. If the market
is unregulated and there are limited
buyers and sellers, the pricing is likely to
be volatile and prone to speculative
manipulation. All these factors are likely to
be unknown by inexperienced investors.
Speculative risk
Arguably, the ICO ‘boom’ can be likened
to the dotcom ‘bubble’. Valuation of
tokens certainly tends not be transparent,
and is highly speculative. The tokens often
5 < and <
seized-in-onecoin-india-raids>.
11
lack the ownership right of any underlying
assets. As noted above, these entities are
generally start-ups, with no trading records,
and therefore no certainty of revenue or
even profit forecasts. As the dotcom
bubble highlighted, investing large
amounts in unproven businesses often ends
in disappointed investors and a re-basing
of the market. Adding new, non-fiat,
currencies into the mix heightens the risks.
Security risks
Tokens are based on new, rapidly
evolving technology that has not been
fully proven or tested. This, combined
with the cryptocurrency foundation and
large monetary values, makes token
stores susceptible to attack from hackers.
If a token repository is hacked and tokens
stolen, investors typically have no recourse
– especially if it is unregulated. This risk is
outlined below in the SEC investigative
report on The DAO (US SEC 2017b).
There have been many examples of
cryptocurrency thefts since 2011; over 32
thefts have been reported as occurring
between 2011 and November 2017 by
BitcoinExchangeGuide (2017), including
an $ theft from Veritaseum in July
2017. An early significant theft victim
was Mt Gox, from which 850,000 bitcoins
(c. $450m) were stolen in February 2014,
resulting in its bankruptcy and closure (see
Appendix). Among other weaknesses, the
Mt Gox situation highlighted the inherent
weaknesses in currency protected by a
private encryption key: the encryption
may be very strong, but a lost or stolen
key is an open door to the funds. Trusting
a third-party (such as Mt Gox) with your
keys has proved not to be more secure
than letting investors retain them. More
recently, in January 2018, another
cryptocurrency exchange, CoinCheck, has
admitted theft of over $530m of funds.
RISKS FOR REGULATORS /
ECONOMIES
Unregulated ICOs
As covered in Chapter 3, those regulators
that have made public statements have
consistently asserted that some ICOs fall
within the scope of ‘securities offers’, and
as a result need to meet the required
legislation. For ICOs, the key concern
with being unregulated is a lack of
verification of the prospectus, or ‘white
paper’ as it is commonly known. This lack
of verification can lead to wild claims in
the white papers, and increased potential
for fraudulent offers or Ponzi schemes,
especially given the over-enthusiasm
among some investors.
Global regulators have developed
specific guidelines on the format and
content of, and the regulatory approval
process for, a prospectus, to ensure that
prospective investors have reliable
information on which to make an
informed decision. In Europe the
guidelines are being given consistency
with an updated European regulation of
securities prospectuses (issued July 2017,
to be fully implemented by 2019) (Official
Journal of the European Union 2017).
Unregulated ICOs have several
consequences for market stability. If a
series of unregulated, higher-risk
investments collapse and investors lose
money, there is an inevitable questioning
of the regulator’s adequacy. Investments
arising from innovations and new
technologies, such as ICOs, demonstrate
the rearward-looking perspective of
regulators, which fuels a perception that
their approach means they are too slow
and out of touch to respond to change.
Perhaps to avoid such a perception, as
chapter 3 below shows, there has been a
flurry of statements from regulators.
However, it remains to be seen if over
time, these statements result in substantive
changes/additions to the regulation, or as
is mainly the case at present, interpretation
of existing approaches to a new product.
Risk of money laundering and
terrorist financing (ML/TF)
The anonymity of transactions and an
ability to raise large sums very quickly
makes ICOs targets for ML/TF. Many of
the regulators (including those in China,
Hong Kong, Russia, Singapore, and
Switzerland) have sought to bring ICOs
within the boundaries of anti-money
laundering (AML) controls.
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | 2. Risks
All the regulatory alerts aimed
at consumers direct these
potential investors to think
carefully about what they are
investing in and whether they
understand the business model
enough to judge its viability.
12
Risks for those raising finance
Concerns over ICOs and the potential for
increased scrutiny and additional regulation
mean that it may be harder, and more
expensive, for future start-ups to position
an ICO and bring real innovation to market.
ICOs are often seen as a route to projects
that would not receive funding through
traditional financing, but are possibly
introducing viable, innovative ideas.
The Economist (2017) highlights work on
developing new computer protocols as
an example, citing Storj, which raised
$30m for a protocol that provides secure
cloud storage. Storj does not have its
own cryptocurrency, but instead uses
bitcoin. Subscribers to the Storj service
pay in bitcoins, and can also earn bitcoins
by contributing storage to the network.
For many, the ICO concept extends the
options available for raising finance and
accessing a group of participants that
appreciate the ideas emerging around
blockchain technology. Certainly, many
ICOs have enabled start-ups to raise
much larger amounts than would have
been possible through traditional
financing and therefore their viability has
been more quickly tested.
The direction so far from regulators is that
some ICOs constitute securities offers,
and therefore have an associated
requirement to fulfil the related regulatory
criteria. The possibility that an ICO may
be a security will mean additional cost for
the promoter and/or; a risk that they may
wrongly consider that their ICO is not a
security and face penalties (often severe)
if the regulators judge that it is.
RISKS FOR TECHNOLOGY
AND INNOVATION
ICOs have provided the launch potential
for many new technology innovations;
without this vehicle, or with stricter
regulations that impose higher barriers to
entry, many technology initiatives may
never get started. As described above,
this affects those looking for financing, but
at a lower level it also potentially damages
the roots of technology innovation.
Critics of the ICO ‘boom’ often indicate
that the blockchain focus of initial ICOs
has been lost as a diverse range of
start-ups turn to ICOs for funding.
Optimal uses of ICOs are identified as
those where blockchain encompasses an
entire value chain: where ‘the product’ is
itself intrinsic within the environment. An
example is the use of tokens that power
distributed protocols, with the support of
strong, involved communities.
In part, this reflects a shift in the economic
models of development. The rise of
open-source projects relied on donations
and goodwill; they were generally
unprofitable, the majority being initially
undertaken for ethical reasons. The belief
of many is that ICOs provide a commercial
vehicle that maintains the community
associated with open-source projects,
with a potential for collaborative efforts to
generate returns for the participants.
These considerations indicate a potential
for a controlled ICO, where certain criteria
need to be fulfilled to demonstrate that
the venture is aligned with the original
blockchain concept. In the same way that
regulators are considering whether ICOs
are really securities, perhaps there is a
mirror set of criteria to assess whether
ICOs are genuine applications of the
blockchain technology.
There is a tricky balance between
regulating investment and avoiding the
stifling of innovation and commercial
opportunity. This is illustrated by
Protostarr (Gibson et al. , discussed in
the Appendix), which abandoned its ICO
after being contacted by the US SEC to
discuss its status (Shin 2017).
RISKS FOR CRYPTOCURRENCIES,
BLOCKCHAIN AND DISTRIBUTED
LEDGERS
Cryptocurrencies have already had a
volatile, although short, life, with
controversy around their stability, security,
legal status, and potential for use in
criminal and terrorist financial activity.
ICOs and the rapid increase in the basket
of cryptocurrencies bring a mixed addition
to these controversies, fuelling some but
also bringing some economic legitimacy
to the concept of cryptocurrencies.
Meanwhile, in parallel to ICO activity and
cryptocurrency expansion, research,
investment in and commercialisation of
the underlying distributed ledger
concepts continue to gather momentum.
For those involved, distributed ledgers
are distinct from cryptocurrencies and
ICOs; but for many they are all part of a
complex leading edge of new technology.
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | 2. Risks
Optimal uses of ICOs are
identified as those where
blockchain encompasses an
entire value chain: where
‘the product’ is itself intrinsic
within the environment.
In this chapter, pronouncements in the public domain on ICOs from regulators around the world
are assessed. The countries covered include the US, Singapore, Canada, China, Russia, Hong
Kong, the UK, Dubai, Australia, South Korea, Switzerland and France.
13
The Appendix contains details specific to
individual regulators that have informed
the summary below. For those interested,
these may provide additional context to
the comments below.
This chapter has been developed to
provide a sense of the approach taken by
regulators around the world, and some of
the key considerations involved. It does
not constitute regulatory advice, or seek
to influence decision making for specific
situations – tailored guidance should be
sought for this. The section is based on
information available in the public
domain as of January 2018.
KEY MESSAGES ARISING ACROSS
JURISDICTIONS
The flurry of activity from regulators,
particularly since September 2017, has
reflected the surge in ICO activity and
specifically the widening public attention
that ICOs and cryptocurrencies have
received. This attention has broadened the
spectrum of investors in ICOs to include
many outside the field of blockchain and
distributed ledger technology. As a result,
and fuelled by speculation of rapid
returns, the risk of fraudulent offers has
increased and with it concerns that ICOs
are generally unregulated and creating a
cryptocurrency bubble.
There are two headline features when
describing the response of regulators:
1. A focus on consumer protection
2. The question of whether an ICO
qualifies as a ‘security’.
Focus on consumer protection
Chapter 2 (on risks) outlined how ICOs
can present risks for all the actors
involved. When looking at these actors,
regulators have, for understandable
reasons, particularly prioritised the risks to
investors. This speaks directly to part of
the core mission of regulators: to protect
unsophisticated participants, particularly
those at risk from new technologies.
Regulators have issued consistent
warnings of the inherent risks in ICOs and
reminders of the need to understand the
underlying nature of individual
investments. For ICOs, this also extends to
understanding the additional complexity
of cryptocurrencies and blockchain
technologies. The risks identified have
been broadly consistent across regulators
and are as covered in Chapter 2. There
are also early, although limited, examples
of direct regulatory action against
fraudulent schemes (eg US SEC 2017f).
Whether an ICO qualifies as a security
An ICO can come to the notice of the
regulator if it is deemed to be a ‘security’.
Broadly speaking, regulatory tests tend to
have some common features in respect of
this assessment – and the US provides an
illustrative example. The SEC definition of
a security offering is based on case law
(SEC vs. . Howey Co. 1946) to
determine the existence of an investment
contract (Justia 1946). The assessable
elements drawn from this are:
1. a contract, transaction or scheme
2. the investment of real money in
a common enterprise
3. with a reasonable expectation
of profits
4. derived from the managerial efforts
of others.
3. Regulation
14
Regulators have taken the view that this
needs to be assessed on a case-by-case
basis, ie some ICOs may satisfy the
securities test, and others may not.
Where an ICO is classed as a security, it
would need to satisfy registration and
other regulatory requirements, as for any
securities offer.
There is also the possibility of an in-
between zone. For example, where the
ICO satisfies the test of being a security,
but because it is targeted at sophisticated
investors only, it could be given an
exemption from the regulatory
requirements it would normally face.
So where might an ICO not satisfy the
securities test? Let us look at the four
requirements listed above.
The first and second are broadly
applicable to ICOs (taking the assumption
that cryptocurrencies are seen as ‘real
money’, though there is still plenty of
debate on this).
For many ICOs, it is the third element
(reasonable expectation of profits) that
will be the key determiner of their status.
Many ICOs will fall outside the boundary:
protocol development is an example,
and fits the initial model of an ICO (for
developing new functionality on top of the
blockchain). Similarly, where the entities
responsible for ICOs develop a service
offering and where investors receive
tokens (or credit) to exchange for these
future services, these ICOs currently tend
to be outside the securities definition,
and so for such entities ICOs provide a
valid funding option. Storj is an example
of this scenario (see Chapter 2 – risks for
those raising finance). Participants do not
expect profits or an income stream;
instead they receive credits for using a
future service. On the other hand, ICOs
that offer future income streams are likely
to be judged to be securities.
There are other examples of ICOs that
offer tokens that can also serve as a
‘payment voucher’ for the underlying
service (Table ).
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | 3. Regulation
ICO DESCRIPTION
Digital storage and retrieval
‘An ecosystem that is designed to facilitate on-demand, secure
and low-cost access to identity verification (IDV) services on the
blockchain’ (Aitken, 2017). The Civic Token or CVC will be used
as payment and reward for transactions and to encourage
contribution to the ecosystem. Civic intends to add additional
services, such as ‘blockchain notary services’ and ‘peer-to-peer
identity services’.
A payment platform that provides a purchase protection
mechanism. Subscribers to the UTRUST ICO therefore receive
tokens they can use to make protected payments.
A ‘gaming’ (betting) platform where users compete against
each other, with no central authority. The Peerplay token is used
for placing bets.
A blockchain-based solution for Web security. The token is used
as the payment method for services on the Gladius platform.
TABLE : ICOs that offer tokens that can also serve as a ‘payment voucher’ for the
underlying service
Where an ICO is
classed as a security,
it would need to satisfy
registration and other
regulatory requirements,
as for any securities offer.
15
The final of the four elements mentioned
earlier, was the subject of The DAO study
by the SEC. The DAO (Decentralised
Autonomous Organisation) was an
unincorporated organisation created by
, a German corporation (Jentzsch
2016)6. The DAO was created ‘with the
objective of operating as a for-profit
entity that would create and hold a
corpus of assets through the sale of DAO
Tokens to investors, which assets would
then be used to fund “projects”’ (SEC
Release No. 81207, 2017). Another
example is OPPORTY,7 a ‘service-focused,
knowledge-sharing business platform
with decentralized, crypto-enabled
marketplace’. It aims to provide a
platform for small businesses and
‘individual providers’ to request and offer
services and conduct business. It will use
‘industry experts’ to establish the rules
and standards for services that will make
it self-governing; so it is clearly
positioning itself as a DAO-like entity.
Ordinarily, an ICO is promoted as a
venture led by a defined management
team. The DAO was unusual, but its
offering was nevertheless determined by
the SEC to have fallen within the test
criteria for securities.
The above examples provide some broad
guidelines, but the bottom line is that
there is a spectrum of regulatory
treatment. Some regulators have stated
that ICOs may fall within the scope of
existing securities regulation, for example
with US, Canada, the UK, Singapore, and
Hong Kong. Others, such as the French,
have decided that, from an initial analysis,
most ICOs do not constitute securities
offers and therefore fall outside existing
regulations. France and Russia have both
recognised that existing regulations are
insufficient to encompass ICOs. For now,
they have presented no additional
guidance or rules, but more information
may well emerge in due course. At the
other end of the spectrum, both China and
South Korea have banned ICOs outright.
Regulators have also considered the
status of cryptocurrencies themselves, and
the approach taken on the regulation of
cryptocurrency exchanges. The US leaves
cryptocurrency exchanges largely
unregulated, while some countries (eg UK,
Canada, Singapore, Hong Kong) require
cryptocurrency exchanges to be registered
and comply with existing exchange
regulation. At the extreme end, China has
banned all cryptocurrency trading.
In summary, the global nature of these
offers, where a website is all that is
required to initiate an ICO, troubles
regulators as to what falls within their
jurisdiction. With the increased numbers
and greater diversity in ICOs, together
with heightened awareness of risk and
some specific examples of fraudulent
ICOs, global regulators have been
relatively quick in making statements and
highlighting regulatory positions around
ICOs. Time will tell as to whether within
existing regulation or new distinct
requirements, a new class of investment
vehicle may emerge for ICOs, separate
from securities but with its own lighter-
touch regulation. Many regulators making
positive statements about ICOs as
potentially valuable capital-raising vehicles
may support such a trajectory. It will be
interesting to see which regulator moves
first and furthest on this.
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | 3. Regulation
6 <
7 <
Regulators have also
considered the status of
cryptocurrencies themselves,
and the approach taken
on the regulation of
cryptocurrency exchanges.
A. KNOWLEDGE
Professional accountants need to keep
their knowledge of blockchain,
cryptocurrency and ICOs up to date, at
least at a basic level. This is a dynamic
situation but a good understanding of the
basics is essential. The Appendix lists some
useful resources for each of these topics,
but the situation is highly dynamic and it
is worth spending time exploring and
reading about the latest news, regulatory
announcements and market trends.
Accountants should keep track of
announcements from the regulators in
the jurisdictions in which they operate. If
they are engaged in offering services to
start-ups or in capital market transactions
they will need a more thorough
understanding of the regulations
affecting those ICOs that are deemed to
be securities. This understanding is
crucial for helping clients to assess
whether securities rules apply and the
specific implications if they do.
The extent of awareness required
depends on the specific job-role of a
16
given professional accountant, but
broadly these regulations fall into the
following four categories:
• securities offerings
• prospectus requirements
• securities trading, and
• anti-money laundering/terrorist
financing.
i. Securities offerings
Each regulator has a defined set of
rules for determining whether an offer
constitutes a security. As described in
Chapter 3 on regulation, where an ICO
is deemed to be an offer of securities
the issuer is required to comply with
securities regulations, unless they fall
within the authorised exceptions for
these regulations (eg where offers are
only made to ‘qualified investors’).
Accountants in business need a basic
understanding of the regulations in
countries where they operate (eg The
FCA Handbook in the UK (FCA 2018), the
Securities Act in the US (US Government
1933), the Securities and Futures Act in
Singapore (Singapore Statutes Online
2001)). More specialised accountants
may need a deeper understanding of the
practical application of these rules, and
seek legal advice where necessary.
The regulations vary by country, and as
indicated, the regulatory pattern is
changing rapidly. Accountants need to
ensure that they provide accurate advice
(or know when to seek legal advice) to help
clients position ICOs in a way that addresses
the regulatory landscape. For example,
this will include appropriate wording in a
white paper to protect investors who are
not sophisticated or eligible.
ii. Prospectus requirements
Initially, regulators will seek to ensure
that any ICO that falls within their
‘securities’ definition satisfies the relevant
regulation. A key element of this is having
a formal, registered prospectus.
Accountants in business should have
basic familiarity with the requirements
for a prospectus: its content, format,
approval process, etc. – for example, see
the European regulation on Securities
Prospectus (European Union 2017).
4. ICOs and the
professional
accountant
ICOs create wide-ranging implications for professional accountants, opening up a range of
opportunities for new services, but also raising caution about potential risks and ethical issues.
17
iii. Securities trading
Most regulatory statements have also
reinforced the need for any trading
marketplace for securities to be
authorised and registered. For traditional
securities this is routine, but new
considerations may arise for the new
entrants, involved in ICOs and tokens as
well as exchanges and market
transactions. Accountants should be
aware of the regulations affecting
securities trading and the requirements
for registration, or understand where
exemptions may apply.
iv. Anti-money laundering (AML) /
counter terrorist financing (CTF)
After fraud, one of the key risks arising
from ICOs is the use of schemes for
money laundering or funding criminal
activities or terrorism. As a result,
regulators are scrutinising ICOs and
related transactions to ensure that they
comply with relevant AML/CTF
regulations. Accountants must stay
current on these regulations, and case
law, and advise clients accordingly.
B. INTERPRETING BUSINESS AND
OPERATING MODELS
The emergence and popularity of ICOs
creates an evolution and expansion in the
ways that businesses, especially start-ups,
can raise capital. The ICO mechanism
creates additional choice. Regulators are
keen to ensure that any ICOs that are, in
reality, securities offers are classified as
such – in which case the term ‘ICO’
should not be applied.
In addition to the knowledge mentioned
above, professional accountants will need
a sufficient understanding of the business
model and operating models of these
new styles of business. This will enable
them to make the link between the
organisation’s proposed fund-raising
approach, and the applicable risks and
regulatory considerations. As mentioned
in preceding sections, the situation is
evolving fast, and the regulator does
not give simple check-box criteria for
every scenario.
For example, from a business model
perspective, there may be a need to
interpret the true purpose of the ICO,
and how it maps to the requirements.
A reasonable expectation of profits may
well subject it to securities regulation,
but having a view on profitability
requires assessing the business model.
Similarly, from an operating model
perspective, a decentralised/DAO-like
model (whether explicit or implied in the
way it actually works, even if it is not
identified as such) has implications for
how the offer is treated.
C. SERVICES OFFERED
Accountants will always seek new services
that evolving markets provide, and ICOs
and blockchain are prime examples.
Research into blockchain is now
widespread; and because of the
prevalence of these research activities
(especially by banks, institutions and
governments) it has become a rich area
for advisory offerings, from technologists
and consultancies.
This is an area where accountants may find
opportunities for involvement in shaping
the future of blockchain. Many of the
initiatives focusing on distributed ledger
are concerned with record keeping,
reconciliation, synchronised transactions,
reporting, etc. Even accountants not
involved should maintain awareness.
Blockchain and distributed ledger have
the potential to be a significant disruptor
of the finance function.
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | 4. ICOs and the professional accountant
The emergence and
popularity of ICOs
creates an evolution and
expansion in the ways
that businesses, especially
start-ups, can raise capital.
18
Larger practices already offer transaction
services that include advice on IPOs.
These services include managing the IPO
process, and providing tax, accounting
and reporting advice. Accountants often
have key roles in valuation, due diligence,
forecasts, working capital and preparation
of the prospectus. There are extended
services providing advice on internal
processes and reviewing systems and
controls, corporate governance, risk
management, financial reporting
procedures, executive performance and
compensation, etc.
ICOs provide another financing option
for businesses, and an opportunity for
accountancy practices to extend their
services, not only by highlighting choices
to clients and helping them make the
right decisions, but also by extending
services to the specific, evolving
intricacies, best practices and pitfalls of
an ICO. This is especially important given
the rapidly evolving regulatory landscape.
This all fits well with the wider ‘Fintech’
(financial technology) landscape that has
attracted much attention and investment.
Firms are also offering specialist advice
on digital currencies: providing
accounting reporting and tax compliance
services. Advisers must not just stay
abreast of global regulatory and
compliance developments but also be
actively engaged with regulators,
especially regarding accounting
standards. Audit of digital currency
companies is a niche but growing area.
D. ETHICS
Accountants need also to consider how
ICO activities involve specific ethical
considerations.
ICOs have arisen through the innovation
of blockchain and cryptocurrencies; these
are disruptive technologies and so the
involvement of regulators in either
banning or categorising ICOs is not
going to be welcome by all parties.
Specifically, there will be areas of
disagreement as to whether a particular
ICO constituents a security offer, and
therefore whether regulations apply.
Accountants may face challenges where
their advice is ignored or rebuffed.
Of greater significance will be where
accountants encounter ‘dubious’ ICOs.
Where an enterprise appears to be
fraudulent or possibly a front for money
laundering or terrorist financing, the duty
of the accountant to report the enterprise
to the regulator will be clear. More
challenging will be the grey areas where
an offer is dubious in quality, in particular
where the accountant suspects that the
white paper does not properly represent
the nature of the proposition. This can
encompass a wide range of situations from
unrealistic forecasts to factual inaccuracies.
The action taken by professional
accountants will vary, but ethics will need
to be kept uppermost in mind.
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | 4. ICOs and the professional accountant
Where an enterprise appears
to be fraudulent or possibly
a front for money laundering
or terrorist financing, the
duty of the accountant to
report the enterprise to the
regulator will be clear.
19
The statistics behind the growth of ICOs
provide clear justification for the attention
they are receiving, but add to this the risk
of fraud, the rumblings of regulators, a
foundation technology (distributed
ledger) with potentially unprecedented
impact on business and finance, together
with opportunities for additional service
offerings, and the mix provides a
compelling landscape for accountants.
ICOs have evolved very quickly; from
blockchain development to a vast range
of entrepreneurial ventures. Now that
ICOs have overtaken venture capital as
the primary vehicle for blockchain
development it raises the question of
what venture capitalists will do to
re-address the balance.
The intrinsic tie between ICOs and
cryptocurrencies adds another twist.
Cryptocurrencies have not been without
controversy, but their booming and
volatile values have caught attention and
this has fuelled their production – as
noted in Chapter 1, over 1,200
cryptocurrencies now exist. Is this too
many? Will there be a consolidation or
will many just become worthless relics?
And the anonymity of blockchain
inevitably invites organised crime and
associated AML/CTF concerns.
Whenever a market grows quickly there
are concerns, in particular regulatory
ones, and especially when the market is
new and stretches boundaries. The most
likely risks from ICOs are fraudulent
schemes, capitalising on a greed for
exponential growth. In addition, where
ICOs lack the scrutiny that regulation
provides there is also a risk that
prospective investors will be misled by an
incomplete or inaccurate white paper,
and a risk that regulators will look out of
touch if they do not respond quickly to
the changing landscape.
Innovation in finance should not be
stifled, but creativity often leaves
regulation behind, and creates a gap
between market expectations and
regulatory impact. In reality, how many
prospective ICO investors are scrutinising
regulators’ announcements before they
follow the helpful step-by-step guides to
buying bitcoins and then sending them to
an anonymous ICO address?
Regulation has to catch up. The
application of securities rules to ICOs that
fall within their scope is the first obvious
step, but many offers do not. So
regulators face a choice: do they move
the boundaries and redefine a securities
offer, or perhaps recognise that ICOs
need a separate, new investment
category? Doing nothing seems an
unlikely option.
While dramatic, the action of China in
banning all ICOs at least brings the issues
to the fore, and allows time for
considering options – without investors
losing money (Acheson 2017). Globally,
the momentum behind ICOs and
cryptocurrencies continues, so we can
expect more changes during 2018.
These factors all point to change but also
create opportunities for accountants: to
be a part of the emerging distributed
ledger landscape, to help innovation and
drive technological ideas to commercial
success, and to advise entrepreneurs on
options for making this happen, in a
landscape where regulation is expanding
and ethical advice is essential.
Conclusion
Appendix
ICO regulatory pronouncements by country
US
The US was the first regulator to call entities launching ICOs to
account and to highlight regulatory and investor issues. The US
Securities and Exchange Commission (SEC) issued both a public
statement (US SEC 2017a) and an investigative report (US SEC
2017b) at the end of July 2017. Both documents highlighted
concerns about ICOs, but they also included positive statements,
the investor bulletin opening with an acknowledgment that ICOs
‘may provide fair and lawful investment opportunities’.
The public statement, an ‘Investor Bulletin’ from the SEC Office
of Investor Education and Advocacy, was squarely targeted at
explaining the risks of ICOs to potential investors. As background
it highlighted their ambiguity, explaining that ‘Depending on
the facts and circumstances of each individual ICO, the virtual
coins or tokens that are offered or sold may be securities. If they
are securities, the offer and sale of these virtual coins or tokens
in an ICO are subject to the federal securities laws’.
These laws emphasise the disclosure requirements for security
offerings, designed to protect investors. These requirements
stipulate that sales of securities be registered with the SEC, and
the statement directs proposers to review the ICO’s official
registration documents. The SEC also highlights the registration
‘exemption’ rules that may be applied – which mean that the
offering can be made only to accredited investors (with
associated net worth or income requirements). This creates an
‘escape-clause’ for ICOs that would be regarded as ‘security
offerings’, but where the entity concerned does not want to go
through the rigour of a public offer.
As for any investment, the SEC’s guidance for consumers is that
they should ensure that they fully understand the ICO: what the
money will be used for and what rights the virtual coins or
tokens provide. The statement identifies that these details
should be laid out in the ICO’s ‘white paper’, or, if it is classified
as a securities offer, its prospectus. Investors are encouraged to
read this document carefully to understand the business plan.
They should clearly understand how, when or if they can get
their money back and any limitations to these processes.
The SEC’s guidance also gives clear advice on understanding
the underlying blockchain; investors should ask whether it ‘is
open and public, whether the code has been published, and
whether there has been an independent cybersecurity audit’.
This latter point squarely alerts investors to the risk that a poorly
designed environment is susceptible to a hack and the theft of
their invested funds – a type of risk not found in a traditional
IPO, but one that investors should keep in mind. Investigating
this should be a test for determining whether they understand
the underlying nature of the investment.
Much of the Investor Bulletin details the risks of ICOs for the
individual investor.
Fraud. Innovative and new technologies are ripe for exploitation
as vehicles for fraudulent investment schemes. The SEC alerts
investors to warning signs of investment fraud: guaranteed high
returns, offers that sound too good to be true, unsolicited offers,
pressure to buy, unlicensed sellers, and a lack of net worth or
income requirements.
Virtual currency risks are also identified, together with risks
associated with virtual currency exchanges, the risk of coin theft
from hackers, and the difficulty of recovering lost funds,
especially from overseas entities that may themselves not be
acting lawfully. The SEC identifies specific challenges when
investigating ICOs following a theft, for example: the difficulty of
tracing transaction flow, the international scope and limitations
of cross-border information, the lack of a central authority and
consequential fragmented information on ICOs and virtual
currencies, and the inability to freeze virtual currencies.
The SEC simultaneously released an Investigative Report on a
specific ICO: The DAO. The DAO was used as an illustration of
the nature and risks of an ICO. The DAO (Decentralised
Autonomous Organisation) was an unincorporated organisation
created by , a German corporation (Jentzsch 2016).8 The
DAO was created ‘with the objective of operating as a for-profit
entity that would create and hold a corpus of assets through the
sale of DAO Tokens to investors, which assets would then be
used to fund “projects”’ (SEC Release No. 81207, 2017).
Between 30 April and 28 May2016, The DAO offered and sold
approximately DAO Tokens in exchange for 12 million
ether (c. $150 million in May 2016). Although was a
German company, the offer was made through the publicly
available DAO website, including to individuals in the US, and
this was why it attracted the attention of the US regulator.
The DAO ICO became notorious because on 17 June 2016 an
attacker exploited a flaw in The DAO’s code to steal around
one-third of its ether. was able to work with Ethereum to
isolate the funds, and return them to The DAO but it was the
end of the road for the venture.
The DAO had a high profile, even before its assets were stolen,
in part owing to the record fundraising, but also the nature of
the entity. As an ‘autonomous organisation’, it was created to
use code to automate organisational governance and decision
making. This therefore tested the defining boundaries of control
and authority. Such definitions are new to the nature of securities,
but a common proposition for a distributed ledger concept.
As with the Investor Bulletin, the Investigative Report (US SEC
2017b) determined that US federal securities laws could apply to
20
8 <
21
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | Appendix
ICOs, depending on their nature. A security is defined (by what
is known as The Howey test) as including ‘an investment
contract: an investment of money in a common enterprise with
a reasonable expectation of profits to be derived from the
entrepreneurial or managerial efforts of others’ (SEC v. .
Howey Co., 328 . 293, 301 (1946)). By nature, this definition is
intended to be flexible so as to encompass ‘the countless and
variable schemes devised by those who seek the use of the
money of others on the promise of profits’.9 The report
concludes that The DAO ICO fulfilled the SEC’s definition, and
was a sale of securities, and should have been registered with
the SEC. No action has been taken, or is proposed, for pursuing
or its directors; the report is aimed more at highlighting
the issues and risks and preventing recurrence.
Where ICOs fall within the boundaries of a security, this requires
registration, and with it ‘full and fair disclosure’. This includes
‘information about the issuer’s financial condition, the identity
and background of management, and the price and amount of
securities to be offered...The registration statement is designed
to assure public access to material facts bearing on the value of
publicly traded securities and is central to the Act’s comprehensive
scheme for protecting public investors’ (US SEC 2017b).
The SEC report provides detailed analysis, supported by case
law, to demonstrate exactly why The DAO ICO fell within the
SEC’s definition of a security offering, with a detailed assessment
of each element of the security definition. This is based on case
law (SEC v. . Howey Co. 1946) to determine the existence of
an investment contract (Justia US Supreme Court 1946). The
assessable elements drawn from this are: a contract, transaction
or scheme; the investment of real money in a common
enterprise; with a reasonable expectation of profits; derived
from the managerial efforts of others.
It is reasonable to assume that the SEC intends future ICO
promoters to review these criteria, with appropriate legal advice,
and assess whether the offer constitutes a security and, if so, to
ensure that the ICO complies with the registration requirements.
In the report, the SEC analyses the background to The DAO and
the role of , and its co-founders. ‘Through their conduct
and marketing materials, and its co-founders led
investors to believe that they could be relied on to provide the
significant managerial efforts required to make The DAO a
success’ (US SEC 2017b). The participants in The DAO identified
themselves as blockchain experts, they told investors they had
selected ‘Curators’ (responsible for the process of deciding
which projects would get investment) on the basis of their
expertise and credentials, and would put forward the
first proposal. This was the most contentious of the Howey test
criteria, given the nature of The DAO’s objectives, ie to be an
‘autonomous organisation’.
The report concludes by recognising that ‘Whether or not a
particular transaction involves the offer and sale of a security
– regardless of the terminology used – will depend on the facts
and circumstances, including the economic realities of the
transaction’ (US SEC 2017b).
Where the offer is deemed to be a sale of securities, then
federal requirements must be adhered to, including registration.
‘The registration requirements are designed to provide investors
with procedural protections and material information necessary
to make informed investment decisions’ (US SEC 2017b). The
SEC highlights that these requirements apply to anyone who
offers and sells securities in the US ‘regardless whether the
issuing entity is a traditional company or a decentralized
autonomous organization, regardless whether those securities
are purchased using . dollars or virtual currencies, and
regardless whether they are distributed in certificated form or
through distributed ledger technology’ (US SEC 2017b).
This conclusion is clear and unambiguous: the SEC intends to
enforce securities requirements by applying the Howey test, and
to ensure adherence to registration and disclosure
requirements. There was significant reaction to the two SEC
documents (US SEC 2017a and 2017b): the value of digital
currencies (such as ether) fell by 10–20% on the report’s release.
The report was a positive step, albeit a slightly late reaction to
the surge in ICOs (bearing in mind the growth since 2014).
Although highlighting the case of The DAO and the applicability
of the securities definition, it does not expand on the criteria,
which would help others assessing ICOs. Instead, it directs
issuers to seek legal advice and ensure that they comply with
SEC requirements, where applicable.
San Francisco venture capital firm Blockchain Capital10 is a
textbook example. They raised $10m in April 2017 under an ICO,
clear from the outset that the token would be a security. The firm
sought an exception, restricting its ICO to accredited investors,
but still raised the funds within six hours (Kastelein 2017a).
On the same day that The DAO report (US SEC 2017b) was
issued, the SEC Divisions of Corporate Finance and Enforcement
also issued a statement. It took a positive tone about distributed
ledger technologies and their potential for influencing and
improving capital markets and the wider financial services industry.
The statement asserted that the Divisions were: ‘hopeful that
innovation in this area will facilitate fair and efficient capital raisings
for small businesses’. But the SEC Divisions also recognised
their ‘obligation to protect investors and recognize that new
technologies can offer opportunities for misconduct and abuse’.
Since these documents were published in June 2017, the SEC
appears to be contacting ICO promoters where there may be a
9 < 10 <
registration requirement. One example is Protostarr, which
abandoned its ICO, with this statement in September 2017:
‘We were recently contacted by the SEC, and under advisement
from legal counsel, we’re ceasing all operations’ (Shin 2017).
Later that month, the SEC went further, bringing charges against
two companies (REcoin and Diamond Reserve Club) and the
person behind them for ‘defrauding investors in a pair of
so-called initial coin offerings (ICOs) purportedly backed by
investments in real estate and diamonds’ (US SEC 2017c). As a
result, the SEC obtained an emergency court order to freeze
assets; the charges filed by the SEC relate to ‘violations of the
anti-fraud and registration provisions of the federal securities
laws’ (US SEC 2017c). Both ventures were taking money from
investors with no evidence or intention of undertaking the
asset-related activities; they were a fraud.
Also in September 2017, the SEC announced the creation of a
‘Cyber Unit’ that will focus on cyber-related misconduct, with
focus areas that include: ‘Violations involving distributed ledger
technology and initial coin offerings’ (US SEC 2017e).
In December 2017 the SEC issued a statement on Munchee and
its proposed ICO (US SEC 2017d). As a result of investigation by
the SEC, and an issuance of a cease-and-desist order, Munchee
abandoned its plans for an ICO (US SEC 2017f). Munchee was
intending to use the ICO to raise capital for its blockchain-based
food-review service; the SEC statement determined that the
nature of the offer meant that the tokens constituted securities
under the SEC rules.
Also in December 2017, the SEC issued a press release detailing
the emergency asset freeze of PlexCorps, which had raised
$15m from thousands of investors by ‘falsely promising a 13-fold
profit in less than a month’ (US SEC 2017g).
The statements and actions from the SEC have more direct
impact on ICO promoters than on investors. Investors are
advised to be cautious, to understand what they are investing in,
and to be aware of the risks. They are also advised that many
ICOs constitute securities sales, and that they should inspect the
documents that promoters are required to file. This puts the
requirement on promoters to identify whether their ICO falls
under the criteria of a securities offer. If it does, then they have
to comply with the securities regulations. Whether it does or
not, is likely to require legal advice, and therefore additional
cost to the promoter. This will mean that some ICOs are not
viable. It also adds a risk to a planned ICO – the late discovery
that it should be registered with the SEC. We can expect to see
more legal cases from the SEC, and more intervention pre-ICO.
This all affects ICOs that fall within the scope of the rules on
securities offers. For the rest, there is currently no change, but
equally no guarantee that the SEC will not add additional
requirements for ICOs.
SINGAPORE
Singapore has become a favoured location for launching ICOs.
The country has a history of attracting start-ups owing to its
favourable taxation regime, progressive regulation and state
support for innovation. The Singapore Central Bank, the
Monetary Authority of Singapore (MAS), has been active in the
support of FinTech initiatives, including the creation of a
Regulatory Sandbox for experimenting with Fintech initiatives
(MAS 2016). In support of blockchain research, MAS launched
the Project Ubin initiative, a collaborative project on the
potential for distributed ledger technology for settlement and
clearing (MAS 2018). Phase one, concluded in November 2016,
focused on inter-bank payments and the use of a tokenised
Singapore dollar on a distributed ledger. A second phase and
spin-off projects are under way.
Recognising the emerging trends, as well as the anonymity issues,
MAS issued a statement in March 201411 that, although digital
currencies were not regulated per se by MAS, intermediaries of
virtual currencies would be regulated for money laundering and
terrorist financing risks. This required virtual currency
intermediaries (entities that buy, sell or facilitate the exchange of
virtual currencies for real currencies) to verify the identities of their
customers and report suspicious transactions to the Suspicious
Transaction Reporting Office. The requirements are equivalent to
those imposed on businesses that undertake cash transactions
(eg money changers). In its statement, MAS emphasised that
virtual currencies are not considered securities or legal tender.
MAS drew a distinction, while highlighting the risks, by stating
that its regulation ‘does not extend to the safety and soundness
of virtual currency intermediaries nor the proper functioning of
virtual currency transactions. Investors in virtual currencies will
not have the safeguards that investors in securities enjoy under
the Securities and Futures Act and the Financial Advisers Act’.
In 2017, with the increase in number of Singapore-centred ICOs,
MAS intensified its focus, recognising that digital tokens no
longer solely function as virtual currencies. In early August 2017
MAS updated its regulatory position around ‘the offer of digital
tokens’, by stating that the offer or issue of digital tokens in
Singapore will be regulated by MAS if the digital tokens
constitute products regulated under the Securities and Futures
Act (SFA), as opposed to mere virtual currency (MAS 2017a). It
illustrated this by stating that ‘digital tokens may represent
ownership or a security interest over an issuer’s assets or
property. Such tokens may therefore be considered an offer of
shares or units in a collective investment scheme under the SFA.
Digital tokens may also represent a debt owed by an issuer and
be considered a debenture under the SFA’ (MAS 2017a). The
SFA’s scope encompasses shares, debentures, futures contracts,
collective investment schemes, business trusts, and real estate
investment trusts.
22
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | Appendix
11 <
23
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | Appendix
Consistent with the US SEC’s approach, the Singapore regulator
now requires that where digital tokens fall within the definition
of securities, issuers are required to lodge and register a
prospectus with MAS. Additionally, secondary trading platforms
of tokens must be recognised or authorised by MAS; this
effectively requires registration of cryptocurrency exchanges.
These changes reflect recognition that an ICO is generally a
fund-raising mechanism that issues digital tokens in exchange
for investment received. Subscribing investors should be entitled
to protection that is no different from the protection extended
to those engaging in equity or loan-based crowdfunding.
At present, securities dealers in Singapore need a Capital
Markets Services (CMS) licence from MAS, together with sizeable
contingency deposits. For example, crowdfunding platforms
require base capital and minimum operational risk requirements
of SGD50,000, even if they target only institutional investors and
do not handle or hold customer monies, assets or positions.
The note again stressed the risks of money laundering and
terrorist financing, highlighting that ‘large sums of monies may
be raised in a short period of time’ (MAS 2017a). MAS
emphasised that the types of digital token offered via ICOs vary
widely and it recognised that some would be subject to the SFA,
but others would not, highlighting the need for legal guidance.
This again is consistent with the US position, drawing attention
to existing definitions of securities, though without additional
guidance or rules.
MAS followed up this clarification note with a joint Advisory Note
in conjunction with the Commercial Affairs Department CAD (the
Singapore Police Financial Crime Division) (MAS 2017b). This
note alerts consumers to the potential risks of digital token and
virtual-currency-related investment schemes. In the last two years,
over 100 complaints have been filed with CAD relating to ICOs
(Tan 2017). The advisory note highlights the need for consumers
to understand the investment product, by understanding fully
the underlying project, business and assets, as well as the
associated risks of the ICO. The note highlighted specific
examples of risks including foreign and online operators, sellers
without a proven track record, insufficient secondary market
liquidity, highly speculative investments, investments promising
high returns, and money laundering and terrorist financing.
The note highlights that some, but not all products require
regulation, urging investors not only to check the MAS directory
of regulated Financial Institutions, but also to check if the entity
is identified as one with a record of claiming to be regulated
when in fact it is not.
The note ends by urging investors to pause before rushing into
an investment decision and to:
1. Make sure they fully understand the benefits and risks of the
product or service before committing.
2. Assess whether the features of the product or service offered
meet their needs.
3. Before committing to an investment, consumers should ASK,
CHECK and CONFIRM
a. ASK the seller as many questions as they need to fully
understand the investment opportunity
b. CHECK if the information provided by the seller on itself or
its scheme is true
c. CONFIRM before investing, the seller or its
representative’s credentials. (MAS 2017b)
Commentators on the Singapore regulator statements have
pointed out that this recognition that not all ICOs fit the
traditional structure of securities may mean that a new class of
investment product classification is needed, recognised as
being distinct, but still requiring regulation and investor
protection (Taylor Vinters LLP 2017).
MAS made a further statement in December 2017 to warn
investors of the risk of investment in cryptocurrencies; citing a
concern that ‘members of the public may be attracted to invest
in cryptocurrencies, such as Bitcoin, due to the recent escalation
in their prices’.12
MAS has also included ‘virtual-currencies’ as a topic for
consideration in its consultation paper on the Proposed
Payment Services Bill, issued in November 2017 (MAS 2017c).
The bill is intended to streamline payments legislation, while
recognising changes to the payments landscape and the
associated change in risks.
CANADA
Recognising the investor risks from ICOs, the Canadian Securities
Administrators (CSA) issued a Staff Notice on 24 August 2017 on
‘Cryptocurrency Offerings’, to help promoters ‘understand what
obligations may apply under securities laws’ (CSA 2017).
The position of the CSA is consistent with that of other
regulators – focusing primarily on the definition of securities and
passing responsibility back to the ICO promoter to ensure that
they fulfil the regulatory requirement if the ICO constitutes an
offer of securities. There has been the creation of the four-
pronged criteria13 by which a security offer can be identified;
consistent with the US ‘Howey test’. Where an offer constitutes
securities, the CSA requires a prospectus and registration,
unless certain exceptions apply.
12 <
13 <
The notice outlined the requirements for cryptocurrency trading,
and the requirement for a securities marketplace to adhere to
the CSA’s rules and be registered (CSA 2017a). The notice also
recognised that currently there are no marketplaces registered.
Then in December, following the US launch of bitcoin-based
futures contracts, the CSA issued a specific warning to dealers
and investors of ‘the inherent risks associated with products
linked to cryptocurrencies, including futures contracts’ (OSC
2017). The note highlighted the price volatility and unrelated
nature of the investments, even if traded on regulated exchanges.
CHINA
The US and Singapore regulators were consistent in their
approaches, but these were followed by a more dramatic
statement from China. On 4 September 2017, China’s central
bank banned all ICOs (People’s Bank of China 2017) in a
statement that criticised ICOs for ‘disrupting the country’s
financial order’ (Vincent 2017). The Chinese regulator identified
ICOs as being ‘a form of unapproved illegal public financing’
that creates speculative investments, often with false assets, and
a suspicion of illegal financial activities – such as financial fraud
and pyramid schemes.
The Chinese central bank also reinforced its position that
cryptocurrencies do not have legal status. While not banning
cryptocurrencies themselves, the state has banned
cryptocurrency exchanges, including pricing and information
services, and violators are having their websites taken down.
The ban on ICOs brought a dramatic halt to an accelerating
market in China. There were 43 ICO platforms in China as of 18
July 2017, according to a report by the National Committee of
Experts on the Internet Financial Security Technology (Rapoza
2017). This report identified that 65 ICO projects had been
completed in China, raising yuan ($398m) (Vincent 2017).
Then in July and August alone, ICOs raised another $766 million
worth of cryptocurrencies. It is thought that this acceleration in
activity may have precipitated the announcement by the regulator.
China’s president identified ‘financial security’ as a top priority in
2017, the year of the 19th National Congress (the once-in-five-
years leadership transition: October 2017), so perhaps it is not
surprising that action was taken so swiftly and decisively.
In January 2018 it was reported that Chinese regulators had
persuaded Renren to abandon its plans for an ICO, with a
suggestion that the regulator was focusing on overseas-listed
Chinese companies (Bloomberg Technology 2018).
China’s approach to blockchain and related cryptocurrencies has
been mixed. In 2013 China banned banks from handling bitcoin
transactions (BBC 2013). At the time, China accounted for
around one-third of global bitcoin transactions (Rabonovitch
2013). It stopped short of an outright ban on bitcoin (Thailand
did this in July 2013 (Trotman 2013)) allowing investors to buy
and sell at their own risk. The Chinese regulator highlighted
specific risks for bitcoin trading:
• price volatility in (relatively) small-volume markets and the
risk that market influence by speculators will heighten
investment risk
• the anonymous nature of bitcoin, creating susceptibility for
money laundering and terrorism financing through its potential
use for criminal activity – eg weapons and drugs trading.
The Chinese central bank is not averse to blockchain
development. In June 2017 it announced an active push on
blockchain research as part of a five-year plan to advance
technology in the finance sector (Tian 2017). This strategy has
included testing a blockchain-based digital currency. This
distinction is important; blockchain is consistently seen globally
as a capability with huge future potential.
It is unlikely that the ICO ban in China will be permanent, with a
temporary halt allowing the market to settle and the regulators
an opportunity to put consumer protection in place (Acheson
2017; Boxmining 2017; Houser 2017). China’s experience in
securitisation followed a similar pattern with a ban in 2007–8
during the global financial crisis and a resumption in 2012 (Shen
and Ruwitch 2017).
RUSSIA
Also on 4 September the Bank of Russia, the central bank, issued
a statement on cryptocurrencies14 that reaffirmed a statement in
201415. The statement highlights that cryptocurrencies are neither
regulated nor supported by the Bank of Russia. It identifies the
risks in cryptocurrencies arising from their anonymous nature –
referencing illegal activities, money laundering and funding
terrorism. The statement specifically highlights the volatile
nature of cryptocurrencies and the risks of investments in ICOs.
Later in September, Moscow hosted Russia’s first ICO
conference,16 which attracted over 300 attenders. Then in
October Vladimir Putin signed five decrees17 for the government
‘to come up with legal definitions for cryptocurrencies, create a
tax on mining them, and a legal procedure for initial coin
offerings based on Russian IPO regulation by July next year’
(Seddon 2017). In December 2017 the Russian Association of
Blockchain and Cryptocurrency (RACIB) announced its intention
of developing, with a consortium of about 30 global bodies, a
uniform ratings standard for No further information has
yet been published on the proposed standards.
24
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | Appendix
14 < 4/9/17.
15 < 27/1/14>
16 The conference website is on: < accessed 25 January 2018.
17 < 24/10/17
18 <
25
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | Appendix
In December 2017 the Chairman of the State Duma Financial
Market Committee indicated19 that the Russian government was
considering a limit on how much individual investors could
invest in ICOs – with an amount per project (c.$1,000) and a limit
per year (c. $10,000).
In January 2018 the Russian minister of finance announced that a
bill was in the process of being drafted to legalise the trading of
cryptocurrencies on approved It is expected to be
put before Russia’s Parliament in February 2018.
HONG KONG
The Securities and Futures Commission (SFC), Hong Kong’s
regulator, issued a statement on 5 September 2017 (SFC 2017).
This identified that ICOs may constitute the offer of securities
(shares, debentures or collective investment schemes). The
definition and regulation of securities is contained within the
SFC’s Securities and Futures Ordinance (SFO) (SFC 2002).
The statement highlighted the need for securities offerings to
comply with Hong Kong securities laws, and that dealing or
advising in securities is a regulated activity that requires
licensing or registration with the SFC.
The statement also contains cautionary notes for investors, and
a warning on the risks of and regulations affecting money
laundering and terrorist financing.
UK
The UK’s financial regulator, the Financial Conduct Authority
(FCA), issued a statement on ICOs on 12 September 2017 (FCA
2017a). This warns consumers that ICOs are ‘very high-risk,
speculative investments’. The brief statement provides an
unambiguous warning:
‘You should be conscious of the risks involved (highlighted below)
and fully research the specific project if you are thinking about
buying digital tokens. You should only invest in an ICO project if
you are an experienced investor, confident in the quality of the
ICO project itself (. business plan, technology, people
involved) and prepared to lose your entire stake’ (FCA 2017a).
The FCA outlines the stark risks in ICOs:
• unregulated space: most ICOs are not regulated by the FCA
and many are based overseas
• no investor protection: you are extremely unlikely to have
access to UK regulatory protections such as the Financial
Services Compensation Scheme or the Financial
Ombudsman Service
• price volatility: like that of cryptocurrencies in general,
the value of a token may be extremely volatile and
vulnerable to dramatic changes
• potential for fraud: some issuers might not intend to
use the funds raised in the way set out when the project
was marketed
• inadequate documentation: instead of a regulated
prospectus, ICOs usually only provide a ‘white paper’; an ICO
white paper might be unbalanced, incomplete or misleading;
a sophisticated technical understanding is needed for full
understanding of the tokens’ characteristics and risks
• early stage projects: typically, ICO projects are in a very early
stage of development and their business models are
experimental. There is a good chance that an investor will
lose their whole stake.
The FCA also highlighted the ambiguity of ICOs, with some
falling within existing investment regulations, but many not. The
FCA also pointed out that firms involved in an ICO may already
be conducting regulated activities, but the precise impact of this
distinction is to be clarified.
The FCA’s guidance is that where an ICO structure has parallels
with Initial Public Offerings (IPOs), private placements of
securities or similar investment structures, the businesses
involved may be carrying out regulated activities or may need to
be authorised by the FCA. Such activities could include digital
currency exchanges, if they facilitate the exchange of tokens as
part of an ICO. Although aimed at consumers, the FCA
statement also addresses businesses involved in an ICO,
emphasising that they should ‘carefully consider if their activities
could mean they are arranging, dealing or advising on regulated
financial investments’ (FCA 2017a).
The FCA recognises that certain ICOs may fall within the UK’s
Prospectus Rules (FCA 2018). These require a formal prospectus
to be published for any offer of transferable securities to the
public (some exemptions apply). The FCA also notes that the
European Prospectus Regulation, published in June 2017, and
with rolling implementation that will be fully implemented in
2019, may have an impact (European Commission 2017).
The Regulation applies to situations where ‘securities’ are offered
to the public, using the definition of ‘transferable securities from
MiFID’ (the Markets in Financial Instruments Directive).
Transferable securities are those classes of securities which are
negotiable on the capital market, with the exception of
instruments of payment, such as:
19 <
20 <
1. Shares in companies and other securities equivalent to shares
in companies, partnerships or other entities, and depositary
receipts in respect of shares
2. Bonds or other forms of securitized debt, including
depositary receipts in respect of such securities
3. Any other securities giving the right to acquire or sell any
such transferable securities or giving rise to a cash settlement
determined by reference to transferable securities,
currencies, interest rates or yields, commodities or other
indices or measures.
This is very broad, and the three examples are just that – the list
is not exhaustive.
The onus is therefore on ICO issuers to demonstrate (with
appropriate legal advice) that their offering does not fall within
these definitions.
The FCA issued a discussion paper on distributed ledger
technology (DLT) in April 2017 (FCA 2017b) and issued a
feedback statement in December 2017 (FCA 2017c). In the
discussion paper, the FCA noted the emergence of ICOs,
recognising the potential regulatory issues around the
‘classification of proprietary tokens’, stating that: ‘Initial coin
offerings, therefore, have various parallels with Initial Public
Offerings, private placement of securities, or crowd sales.
Depending on how they are structured, they may, therefore,
fall into the regulatory perimeter’. The paper elicited responses
to the question ‘What legal and regulatory challenges do firms
find in fitting initial coin offerings into our regulatory
framework?’ (FCA 2017b).
In the summary paper, the FCA noted that ‘the nature of each
token, project, service, company and so on, can vary greatly,
making overall classification of ICOs from a legal perspective
more difficult’ and added ‘Having already issued an alert
warning consumers of the speculative nature and high risks of
ICOs, we will gather further evidence on the ICO market and
conduct a deeper examination of the fast-paced developments.
Our findings will help to determine whether or not there is need
for further regulatory action in this area’ (FCA 2017b).
The FCA did not elaborate on the parallels between ICOs and
IPOs but activities in 2016 and 2017 aimed at reforming IPO
processes provide a guide. The FCA issued a policy statement
on ‘the availability of information in the UK equity IPO process
(FCA 2017d)’ in October 2017, which followed a discussion
paper (FCA 2016). These focus on ensuring that the prospectus
plays a more central role in IPOs, after criticism over the timing,
sequencing and quality of information provided.
DUBAI
The Dubai Financial Services Authority (DFSA) issued an Investor
Statement on 13 September 2017 that highlighted the risks of
ICOs, described as ‘certain new and evolving online offerings’
stating that ‘These offerings should be regarded as high-risk
investments’ (DFSA 2017).
The note emphasises that the DFSA neither regulates these
product offerings nor licenses firms undertaking ICOs. The brief
note concludes by directing consumers to advice on ‘How to
avoid being scammed’.
AUSTRALIA
The Australian Securities and Investments Commission (ASIC)
issued an Information Sheet on Initial Coin Offerings on 28
September 2017 (ASIC 2017). The statement recognised that
many other regulators had already issued guidance and its
content was consistent with the majority.
It recognised the potential importance of ICOs, but emphasised
the need for investor ‘trust and confidence’. It highlighted that
the legal status of an ICO is dependent on circumstances:
specifically, its structure and rights; and that an ICO could
constitute an offer of shares or derivatives, or it could be a
managed investment scheme. The statement highlighted the
protection provided to investors for investments covered by the
regulations and the risk to investors on ICOs that are not so
covered. Australian ICO activity has continued, for example
FinTech start-up HCash raised AUS $53m (£30m) in an ICO that
completed in December 2017 (Kastelein 2017b). HCash provides
connectivity between blockchain systems, allowing the transfer
of information and value.
SOUTH KOREA
South Korea is the third-largest market for bitcoin trading (after
Japan and the US) (Kim 2017). The regulator in South Korea, the
Financial Services Commission (FSC) announced on 29
September 2017 (White, Harris 2017; O’Leary 2017)21 a proposal
to ban all ICOs, owing to increased risk of financial scams, and
that ‘stern penalties’ will be issued to financial institutions and
any parties involved in issuing ICOs. The FSC argued that the
action was necessary as part of the need for tight control and
monitoring of virtual currencies – $89m was raised in ICOs in
September 2017 alone. Since then there have been no
legislative changes but there has been much speculation,
including on the potential for taxing bitcoin trades.
In January 2018 the FSC issued a press release detailing
inspections at six commercial banks to validate adherence to
AML obligations, in relation to transactions with cryptocurrency
exchanges (FSC 2018).
26
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | Appendix
21 Reported in: < and <
27
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | Appendix
SWITZERLAND
Switzerland has been an active hot-spot for cryptocurrency
start-ups, owing to its favourable tax regime. Forbes reported in
September 2017 that Switzerland was accountable for $600m of
the $2bn raised ICOs in 2017 (Torpey 2017). In December 2017,
Swiss-based SingularityNET raised $36m via an ICO – in less
than 60 The overwhelming take-up (the ICO was 10x
oversubscribed) is indicative of the combined interest in AI,
blockchain and cryptocurrencies. SingularityNET is building a
blockchain-based marketplace for AI algorithms.
On 29 September 2017, the Swiss Financial Market Supervisory
Authority (FINMA) issued a guidance note on ‘The Regulatory
Treatment of Initial Coin Offerings’ and stated that a number of
ICOs were being investigated ‘to determine whether regulatory
provisions have been breached’ (FINMA 2017a).
The note identified ICOs as being ‘a digital form of the initial
public offerings that businesses carry out but which, by contrast,
exclusively takes place using blockchain technology’. Like
previous regulators, FINMA recognised the ‘innovative
potential’ of blockchain and emphasised its support for
associated research (FINMA 2017a).
FINMA noted, but without being specific, that ‘depending on
how an ICO is structured’ some elements of existing regulations
may apply, calling out AML/TF, banking law, securities trading
and collective investment scheme legislation. The note closed
with an identification of the investor risks associated with ICOs,
and the action being taken to address fake cryptocurrencies. It
referenced a previous press release on its action in closing down
‘E-Coin’, which took at least €4m when no actual blockchain
currency existed (FINMA 2017b).
FRANCE
The French regulator, Autorité des Marchés Financiers (AMF),
was one of the last to make an initial statement on ICOs, but in
doing so it has taken a distinctive position. The statement (26
October 2017), highlights the investor risks with ICOs but also
provides the clearest definition of their unique elements:
‘ICO transactions are intended to finance technological projects
at an early stage of their development. Purchasing tokens
requires a good understanding of the nature of these projects,
the underlying technology and the related risks. This type of
fundraising is by nature intended for a technologically oriented
and informed audience. The tokens issued during these
transactions have different characteristics specific to each
transaction, and it is essential to be informed about the nature
of the token issued, what it represents for the enterprise that
issues it, and the related risks and benefits’ (AMF 2017a).
The AMF has undertaken an in-depth study of ICOs (though it
has not divulged details of what this involved) and determined
that while some would fall under existing regulations ‘most of
these issues would fall, in the current state of the law, outside
of any regulation for which the AMF ensures compliance’.
Recognising that most ICOs do not fall within existing regulation,
such as securities, the AMF initiated a consultation (AMF 2017b;
closed on 22 December 2017) to consider three options for ICOs:
• to create a guide to good practice for ICOs (ie unregulated
guidance), or
• to extend existing regulation around securities offers to
encompass ICOs, or
• to propose new, distinct legislation specific to ICOs.
A date for communicating the findings of the consultation has
not been set.
The AMF also announced the UNICORN programme23 (Universal
Node to ICOs Research and Network) that will provide a
framework for guidance on ICOs, designed to protect both
investors and issuers. Supported by academic research, the AMF
intends to publish an initial impact analysis of ICOs in a year’s time.
22 <
23 <
Summary of regulators’ statements
COUNTRY DATE ENTITY POSITION STATEMENT LINK
Russia January 2014 Bank of Russia Risks of crypto currencies
PR/?file=
Singapore March 2014 Monetary Authority of
Singapore (MAS)
MAS to Regulate Virtual
Currency Intermediaries for
Money Laundering and Terrorist
Financing Risks
media-releases/2014/mas-to-regulate-virtual-
currency-intermediaries-for-money-laundering-and-
US July 2014 SEC Office of Investor
Education and Advocacy
Investor Alert: risks of
investments involving bitcoin
and other virtual currencies
news-alerts/alerts-bulletins/investor-alert-bitcoin-
other-virtual-currency
US 25 July 2017 SEC Office of Investor
Education and Advocacy
Investor Bulletin: ICOs that
constitute securities need to
follow SEC regulations
bulletins/ib_coinofferings
US 25 July 2017 SEC (Distributed Ledger
Technology Working
Group)
Investigative Report: The Dao an
example of an ICO that
constitutes a security offer
investreport/
US 25 July 2017 SEC Divisions of
Corporate Finance and
Enforcement
Reinforcement of need for
securities offers to comply with
regulations
corpfin-enforcement-statement-report-
investigation-dao
Singapore May 2017 Monetary Authority of
Singapore (MAS)
Conclusion of phase one of
Project Ubin: Central Bank
Digital Money using Distributed
Ledger Technology
Centre/Smart-Financial-Centre/
Singapore 1 August
2017
Monetary Authority of
Singapore (MAS)
ICOs that constitute securities
need to follow MAS regulations
Media-Releases/2017/MAS-clarifies-regulatory-
position-on-the-offer-of-digital-tokens-in-
Singapore 10 August
2017
Monetary Authority of
Singapore (MAS)
Commercial Affairs Department
CAD (the Singapore Police
Financial Crime Division).
Media-Releases/2017/Consumer-Advisory-on-
Canada 24 August
2017
Canadian Securities
Administrators (CSA)
Responsibility of ICO promoter
to fulfil regulatory requirements
Securities-Category4/csa_20170824_
China 4 Sept 2017 People’s Bank of China All ICOs banned for ‘disrupting
the country’s financial order’
Russia 4 Sept 2017 Bank of Russia Reaffirmation of the risks in
cryptocurrencies
PR/?file=04092017_183512if2017-09-
Hong Kong 5 Sept 2017 Securities and Futures
Commission (SFC)
Digital tokens may be
‘securities’ and subject to
securities regulation
news-and-announcements/news/
doc?refNo=17PR117
UK 12 Sept 2017 Financial Conduct
Authority (FCA)
Warning about ICOs as
high-risk, speculative
investments
initial-coin-offerings
UK April 2017 Financial Conduct
Authority (FCA)
Discussion Paper on distributed
ledger technology
28
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | Appendix
COUNTRY DATE ENTITY POSITION STATEMENT LINK
Dubai 13 Sept 2017 Dubai Financial Services
Authority (DFSA)
ICOs should be regarded as
high-risk investments
DFSA-Issues-General-Investor-Statement
US 25 Sept 2017 Securities and Exchange
Commission
SEC announces enforcement
initiatives
Australia 28 Sept 2017 Australian Securities and
Investments Commission
ICOs may fall within existing
legislation
transformation/initial-coin-offerings/
Switzerland 29 Sept 2017 Financial Market
Supervisory Authority
(FINMA)
ICOs may fall within existing
regulations
news/2017/09/20170929-mm-ico/
US 29 Sept 2017 Securities and Exchange
Commission
SEC exposes two ICOs
release/2017-185-0
France 26 October
2017
Autorité des Marchés
Financiers (AMF)
AMF launches consultation and
initiates UNICORN
Communiques-de-presse/AMF/annee-2017?docId
=workspace%3A%2F%2FSpacesStore%2F509
7c770-e3f7-40bb-81ce-db2c95e7bdae
Singapore 19 December
2017
Monetary Authority of
Singapore (MAS)
Consultation Paper on Proposed
Payment Services Bill
Consultation-Paper/2017/Consultation-Paper-on-
US 11 December
2017
Securities and Exchange
Commission
Company halts ICO after SEC
concerns
admin/2017/
Singapore 19 December
2017
Monetary Authority of
Singapore (MAS)
MAS cautions against
investments in cryptocurrencies
Media-Releases/2017/MAS-cautions-against-
UK December
2017
FCA Feedback on DLT discussion
paper
South
Korea
8 January
2018
Financial Services
Commission
Inspections of commercial banks
downManager?bbsid=BBS0048&no=122667
COUNTRY DATE ENTITY POSITION STATEMENT LINK
29
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | Appendix
30
Resources
ICOS
• ICO Alert: active and current and upcoming token sales and ICOs:
• TokenMarket: includes token and cryptocurrency database:
• CoinSchedule:
BLOCKCHAIN
• Blockchain News:
• Blockchain Research Institute:
• Blockchain Research at TUM (Technische Universität München):
• Massachusetts Institute of Technology:
CRYPTOCURRENCIES
• Coindesk – digital media, events and information services company for the digital asset and blockchain technology community:
• Cointelegraph – news and analyses on the future of money: Fintech, Blockchain and Bitcoin:
• Bitcoin Magazine:
• Bitcon Forum – bitcoin discussion forum:
CONCEPTS AND REFERENCE
• Bitcoin Wiki:
CRYPTOCURRENCIES – THE BASICS
ICOs typically accept payments in either bitcoin or ether, both
cryptocurrencies. Cryptocurrencies are digital assets that use
cryptography to secure the transactions using what is known as
‘public key encryption’. This uses two keys: a public key for
authentication and a private key, known only by the owner and
used to decrypt the message.
With blockchain-based currencies the control of transactions is
managed by a distributed ledger (the blockchain). The ledger is
publicly shared (distributed) and creates a permanent,
immutable record of each confirmed transaction. By nature, a
distributed ledger has no central authority. Instead, block chain
relies on a peer-to-peer network that creates consensus about
transactions and records. It does this by periodically (roughly
every 10 minutes) creating a new ‘block’. Participants in the
network (bitcoin miners) compete to create a new block,
combining new transactions and a difficult proof-of-work
problem. The problem is challenging, takes computing effort
and trial and error, but once a solution is found it can be easily
validated as correct, the block and transactions confirmed and
added to the ledger. Successful ‘miners’ are rewarded with
bitcoins for their work. This encourages participation and
reinforces the peer-to-peer network and distributed foundation.
It also means that the ledger, which records the transactions, is
accurate. The security issues around crypctocurrencies have arisen
through the challenges of public key encryption and the risks
that if keys are lost or stolen, coins can then be misappropriated.
Case Study: Mt Gox
Mt Gox was a bitcoin exchange that ultimately went
bankrupt in 2014 after a breach disclosed in 2011, which
resulted in the theft of 850m bitcoins with a value at the time
of over $460m; Adelstein and Stucky 2016; Hornyak and Kirk
2014; Nilsson 2017). At the same time, $27m in company
funds was stolen. Mt Gox was the largest bitcoin exchange.
Bitcoins had been hacked previously and the loss of bitcoins
announced in 2011 appears to have taken place over a period
of time, probably since before 2011. The uncertainty underlies
the lack of controls and transparency at Mt Gox, and these were
probably the underlying cause. Mt Gox was an unregulated
private company that went from being an online marketplace
for trading cards in a fantasy game to handling 70% of all global
bitcoin transactions. A combination of poor controls over the
handling of customer accounts and their reconciliation is one
factor. In addition, control of the development of the trading
exchange software was poor, with inadequate version control
and a failure to address known security issues quickly.
The blockchain record is immutable, so the transaction log
provides a consistent, permanent record of transactions. The
result is that after a hack such as that of Mt Gox it is, in theory,
possible to trace transactions through the blockchain record.
After the Mt Gox breach investigators were able to trace the
destination of the stolen coins. The anonymous nature of
blockchain, however, makes identification of those responsible
challenging. Nonetheless, in July 2017 a Russian was arrested
in Greece, and may be extradited to the US, accused of
laundering more than $4bn in bitcoin, including funds stolen
from Mt Gox (Gibbs et al. 2017).
Case Study: Bitfinex
Bitfinex () is a Hong-Kong
based bitcoin exchange that came to prominence in August
2016 when a security breach resulted in the theft of 119,756
bitcoins from customer accounts, with a value of $72m
(Baldwin 2016). The price of bitcoin fell by 20%. This was the
second time that bitfinex had been hacked – the first time was
in May 2015 when 1,500 coins were stolen – and it raised
concerns about the risks and stability of bitcoin and
blockchain. These are two separate areas and the hack at
Bitfinex was not related to blockchain itself but to the storage
of bitcoins (Kaminska 2016).
Bitcoin accounts, as hacked at Bitfinex, are only as secure as the
private encryption keys that secure them. These are complex
strings of characters, and can easily be lost or forgotten. So to
counter this, exchanges such as Bitfinex provide a service
managing keys on users’ behalf. This is where the mechanics of
the hack become unclear; as would be expected there is much
speculation of the method of breaching these encryption keys,
but no hard facts. It has led to widespread concerns over the
ability of a central exchange to hold customer funds securely.
The breach at Bitfinex also highlighted a lack of transparency.
Bitfinex is not publicly traded, so there is limited information on
the company’s financials, for example it publishes no revenue
figures. In May 2017 Bitfinex announced that it had appointed
Friedman LLP to perform ‘a comprehensive balance sheet
audit’. Bitfinex recognised that ‘finding a reputable audit that
is crypto-savvy has not been easy’ (Bitfinex 2017a). The
announcement also stated: ‘The comprehensive balance sheet
audit, which will be dated June 30th, 2017, will require
considerable time and resources on both sides’. Bitfinex has
made no further statement on the audit, or indicated whether it
will be made public, although in May the company also stated
that, ‘In connection with our engagement of Friedman and their
expertise in the digital currency industry, we will be undertaking
a process to optimize our financial operations and streamline
internal accounting procedures as we push toward the goal of
having fully audited financials (both balance sheet and
operating results) in 2018’ (Bitfinex 2017a).
Bitfinex applied a 36% reduction to all account balances after
the hack, exchanging this reduction for its tokens. In April 2017
Bitfinex (2017b) announced it had bought back all the BFX tokens,
and so had paid back all the stolen bitcoins. This put customers’
bitcoin holdings back to where they had been in August 2016.
In that time, the value of bitcoin had increased by 183%.
31
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | Resources
32
References
Acheson, N. (2017), ‘China’s ICO Ban: Understandable, Reasonable
and Probably Temporary’ [website article], Coindesk, 12 September
<
probably-temporary/>, accessed 25 January 2018.
Adelstein, J. and Stucky N.-K. (2016), ‘Behind the Biggest Bitcoin Heist in
History: Inside the Implosion of Mt. Gox’ [website article], Daily Beast, 19
May <
in-history-inside-the-implosion-of-mt-gox>, accessed 26 January 2018.
AMF (Autorité des Marchés Financiers) (2017a), The AMF Publishes a
Discussion Paper on Initial Coin Offerings and Initiates its UNICORN
Programme’ [online news release], 26 October <-france.
org/en_US/Actualites/Communiques-de-presse/AMF/annee-2017?docId
=workspace%3A%2F%2FSpacesStore%2F5097c770-e3f7-40bb-81ce-
db2c95e7bdae&langSwitch=true>, accessed 26 January 2018.
AMF (2017b), ‘AMF Public Consultation on Initial Coin Offerings’ [online
public consultations archive access], 26 October <-
=workspace%3A%2F%2FSpacesStore%2Fa2b267b3-2d94-4c24-acad-
7fe3351dfc8a>, accessed 26 January 2018.
Anon., ‘ICOs Raised $4 Bln in 2017, What 2018 Has in Store’ [website
article], Cointelegraph: The Future of Money, 31 December 2017
<
has-in-store>, accessed 25 January 2018.
ASIC (Australian Securities and Investments Commission) (2017), ‘Initial
Coin Offerings’ [website information] <
resources/digital-transformation/initial-coin-offerings/>, accessed 26
January 2018.
Baldwin, C. (2016), ‘Bitcoin worth $72m Stolen from Bitfinex Exchange in
Hong Kong’ [website article], Reuters, 3 August <.
com/article/us-bitfinex-hacked-hongkong/bitcoin-worth-72-million-
stolen-from-bitfinex-exchange-in-hong-kong-idUSKCN10E0KP>,
accessed 26 January 2018.
Binham (2017), ‘ICO Regulation Inconsistent as Cryptocurrency Bubble
Fears Grow’, [online article] Financial Times, 24 November 2017
<
7a9fb7d6163e>, accessed 21 January 2018.
Bitcoin Exchange Guide (2017), ‘Top Cryptocurrency Theft Hacks – List
of Biggest Security Breaches?’ <
top-cryptocurrency-theft-hacks/>, accessed 25 January 2018.
Bitfinex (2017a), ‘Auditor Engagement’ [online announcement], 5 May
< accessed 26 January 2018.
Bitfinex (2017b), ‘100% Redemption of Outstanding BFX Tokens’ [online
announcement], 3 April <
accessed 26 January 2018.
Bloomberg Technology (2018), ‘Renren to Scrap ICO After Talks with
China Regulators, Sources Say’ [website article], 9 January <https://www.
after-talks-with-china-regulators>, accessed 25 January 2018.
Boxmining (2017), ‘China ICO Ban is Temporary, Will Introduce Licensing
Soon Hints Chinese Official’ <
temporary-will-introduce-licensing-soon/>, accessed 25 January 2018.
BBC (2013), ‘China Bans Banks from Handling Bitcoin Trade’ [website
article], 5 December <
technology-25233224>, accessed 25 January 2018.
CoinMarketCap (live feed), Cryptocurrency Market Capitalizations,
Omni < accessed 12
January 2018.
CoinSchedule (), ‘Cryptocurrency ICO Stats 2017’ [website data]
< accessed 12 January 2018.
CSA (Canadian Securities Administrators) (2017), Cryptocurrency
Offerings <
Category4/>
DFSA (Dubai Financial Services Authority) (2017), ‘DFSA Issues General
Invstor Statement on Cryptocurrencies’ [online media release], 13
September <
General-Investor-Statement>, accessed 26 January 2018.
Duncan, J. (2017) ‘Are ICOs the High Yield Bond of the 21st Century?’
[online article], Singapore Business Review, 19 September <http://sbr.
century>, accessed 25 January 2018.
Economist (2017), ‘The Market in Initial Coin Offerings Risks Becoming a
Bubble’ [online article originally published in print under the title
‘Coining It’], 27 April <
economics/21721425-it-may-also-spawn-valuable-innovations-market-
initial-coin-offerings>, accessed 25 January 2018.
European Commission (2017), ‘Securities Prospectus’ [online prospectus]
<
finance/financial-markets/securities-markets/securities-prospectus_en>,
accessed 26 January 2018.
European Union (2017), Regulation of the European Parliament and of
the Council on the Prospectus to be Published When Securities are
Offered to the Public or Admitted to Trading on a Regulated Market,
and Repealing Directive 2003/71/EC <
doc/document/PE-63-2016-INIT/en/pdf>, accessed 26 January 2018.
FCA (Financial Conduct Authority) (2016), ‘DP16/3: Availability of
Information in the UK Equity IPO Process’ <
publications/discussion-papers/dp16-3-availability-information-uk-
equity-ipo-process>, accessed 26 January 2018.
FCA (2017a), ‘Initial Coin Offerings: Consumer Warning about the Risks
of Initial Coin Offerings’ [website statement] <
news/statements/initial-coin-offerings>, accessed 26 January 2018.
FCA (2017 b), Discussion Paper on Distributed Ledger Technology
< accessed
26 January 2018.
FCA (2017c), Distribute Ledger Technology: Feedback Statement on
Discussion Paper 17/03 <
>, accessed 26 January 2018.
FCA (2017d), ‘PS17/23: Reforming the Availability of Information in the
UK Equity IPO Process‘ [online policy statement], 26 October <https://
information-uk-equity-ipo-process>, accessed 26 January 2018.
FCA (2018), FCA Handbook: Prospectus Rules, February <https://www.
accessed 26 January 2018.
FINMA (Financial Market Supervisory Authority) (2017a), ‘FINMA is
investigating ICO Procedures’ [online press release], 29 September
< accessed
26 January 2018.
FINMA (2017b), FINMA Closes Down Coin Provides and Issues Warnings
about Fake Cryptocurrencies’ [online press release], 19 September
<
accessed 26 January 2018.
FSC (Financial Services Commission (South Korea)) (2018), KOFIU
and FSS Inspect Banks Over Cryptocurrency Trading Accounts
[Press release]. 8 January <
BBS0048&no=122667>, accessed 26 January 2018.
Gibbs, S. and agencies (2017), ‘”Criminal Mastermind” of $4bn Bitcoin
Laundering Scheme Arrested’ [online article], The Guardian, 27 July
<
mastermind-4bn-bitcoin-laundering-scheme-arrested-mt-gox-exchange-
alexander-vinnik>, accessed 26 January 2018.
Gilson, J., Park, S., Compton, A., Cortex, N. and Albrado, I. (.),
Protostarr: Digital Entertainment Investing Powered By Smart Contracts
(Draft Version ) < accessed 25
January 2018.
Harris (2017), ‘South Korea Bans Initial Coin Offerings’ [online article],
Financial Times, 29 September 2017 <
eb981cd8-9923-37c3-9ec3-e5276b65ee8e?mhq5j=e7>, accessed 21
January 2018.
Hornyak, T. and Kirk, J. (2014), ’10 Things You Need to Know about Mt
Gox’s Bitcoin Implosion’ [website article], PC World, 6 March <https://
>, accessed 26 January 2018.
Houser, K, (2017), ‘According to Chinese Official, China’s Ban on ICOs is
Only Temporary’ [website article], , 11 September <https://
offerings-is-only-temporary>, accessed 25 January 2018.
Jentzsch, C. (2016), ‘The History of The DAO and Lessons Learned’
[Blog], Blog, 24 August <
dao-and-lessons-learned-d06740f8cfa5>, accessed 25 January 2018.
Justia US Supreme Court (1946), ‘SEC v. Howey Co., 328 . 293 (1946)’
[online court record] <
us/328/293/>, accessed 25 January 2018.
Kaminska (2016), ‘Bitcoin Bitfinex Exchange Hacked: The Unanswered
Questions’ [online article], Financial Times, 4 August <.
com/content/1ea8baf8-5a11-11e6-8d05-4eaa66292c32>, accessed 21
January 2018.
Kastelein, R. (2017a), ‘Blockchain Capital Closes ICO – $10 Million in Six
Hours Raised in Record Time’, [website article], Blockchain News, 11
April <
closes-ico-10-million-in-six-hours-raised-in-record-time/>, accessed 25
January 2018.
Kastelein, R. (2017b), ‘Australian Blockchain Startup HCash raises $53m
in ICO’ [website article], Blockchain News, 6 November <http://www.
raises-53m-ico/>, accessed 26 January 2018.
Kim, Y. (2017), ‘Behind South Korea’s Cryptocurrency Boom’ [online
article], MIT Technology Review, 7 December <https://www.
boom/>, accessed 26 January 2018.
Mangrove Capital Partners (2017), Tokenisation: Implications for the
Venture Capital Industry <
>, accessed 25 January 2018.
MAS (Monetary Authority of Singapore) (2016), ‘MAS Issues “Regulatory
Sandbox” Guidelines for FinTech Experiments’ [online media release],
16 November <
Media-Releases/2016/MAS-Issues-Regulatory-Sandbox-Guidelines-for-
>, accessed 25 January 2018.
MAS (2017a), ‘MAS Clarifies Regulatory Position on the Offer of Digital
Tokens in Singapore’ [online media release], 1 August <.
>,
accessed 25 January 2018.
MAS (2017b), ‘Consumer Advisory on Investment Schemes Involving
Digital Tokens (Including Virtual Currencies)’ [online media release], 10
August <
Releases/2017/Consumer-Advisory-on-Investment-Schemes-Involving-
>, accessed 25 January 2018.
MAS (2017c), Proposed Payment Services Bill [Consultation Paper PO21],
November <
consult_papers/2017/Consultation%20on%20Proposed%20Payment%20
Services%20Bill%20MAS%>, accessed 25 January 2018.
MAS (2018), ‘Project Ubin: Central Bank Digital Money using Distributed
Ledger Technology’ [website article], updated 17 January <http://www.
>, accessed 25 January 2018.
Nilsson, K. (2017), ‘Breaking Open the MtGox Case: Part 1’ [website
article], 27 July <
html>, accessed 26 January 2018.
O’Leary (2017), ‘South Korean Regulator Issues ICO Ban’ [website
article], Coindesk, 29 September <
korean-regulator-issues-ico-ban/>, accessed 26 January 2018.
Official Journal of the European Union (2014), ‘Directive 2014/65/EU of
the European Parliament and of the Council of 15 May 2014 on Markets
in Financial Instruments and Amending Directive 2002/92/EC and
Directive 2011/61/EU’ [online journal], 12 June 2014 <http://eur-lex.
accessed
26 January 2018.
Official Journal of the European Union (2017), ‘Regulation (EU) 2017/1129
of the European Parliament and of the Council’ [online journal], 30 June
<
017R1129&from=EN>, accessed 25 January 2018.
OSC (Ontario Securities Commission) (2017), ‘Canadian Securities
Administrators Remind Investors of Inherent Risks Associated with
Cryptocurrency Futures Contracts’ [online news release], 18 December
<
>, accessed 25 January 2018.
People’s Bank of China (2017) [Chinese language website article dated
4 September] <
3374222/>, accessed 25 January 2018.
Rabinovitch (2013), ‘China Banks Banks from Bitcoin Transactions’
[online article], Financial Times, 5 December <
content/40b78d2e-5d87-11e3-95bd-00144feabdc0?mhq5j=e7>,
accessed 21 January 2018.
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | References
33
ICOs: real deal or token gesture? Exploring Initial Coin Offerings | References
Rapoza, K. (2017)’,China’s ICO Ban Doesn’t Mean It’s Giving Up On
Crypto-Currencies’ [website article], Forbes, 6 September <https://www.
its-giving-up-on-crypto-currencies/#766782c47aeb>, accessed 25
January 2018.
Russo, C. and Kharif, O. (2017) ‘The Hottest ICOs are the Ones that Have
Done the Least Amount of Work’ [website article], Bloomberg
Technology, 12 December <
articles/2017-12-12/want-to-issue-a-red-hot-ico-rule-no-1-is-do-very-
little-work>, accessed 25 January 2018.
SFC (Securities and Futures Commission (Hong Kong)) (2002), Securities
and Futures Ordinance No. 5 <
sfo/1/Ordinance/5%20of%>, accessed 25 January 2018
SFC (Securities and Futures Commission (Hong Kong)) (2017),
‘Statement on Initial Coin Offerings’ [website statement], 5 September
<
statements-and-announcements/statement-on-initial-coin-offerings.
html>, accessed 25 January 2018.
Seddon (2017) ‘Putin Orders Government to Devise Cryptocurrency
Regulations’ [online article], Financial Times 24 October <https://www.
accessed 21
January 2018.
Shen, S. and Ruwitch, J. (2017), Securitization Boom Exposes China’s
Slapdash Deleveraging Efforts’ [website article], Reuters, 16 June
<
securitization-boom-exposes-chinas-slapdash-deleveraging-efforts-
idUSKBN1970I6>, accessed 25 January 2018
Shin, L. (2017), ‘After Contact By SEC, Protostarr Token Shuts Down
Post-ICO, Will Refund Investors’ [website article], Forbes, 1 September
<
sec-protostarr-token-shuts-down-post-ico-will-refund-
investors/#6628df90192e>, accessed 25 January 2018.
Singapore Statutes online {2001), ‘Securities and Futures Act, Chapter
289’ < accessed 26 January 2018.
Smith & Crown (2016), ICOs, Token Sales, Crowdsales [website]
< accessed 25 January 2018.
Suberg, W. (2017), ‘OneCoin, Much Scam: 18 Seminar Organizers
Arrested, $3 Mln Seized in OneCoin India Raids’ [website article],
Cointelegraph: The Future of Money, 27 April <.
com/london-police-investigate-onecoin-cryptocurrency-scheme/> and
<
organizers-arrested-3-mln-seized-in-onecoin-india-raids>, accessed 25
January 2018.
Sunnarborg, A. (2017), ‘ICO Investments Pass VC Funding in Blockchain
Market First’ [website article], Coindesk, 9 June <.
com/ico-investments-pass-vc-funding-in-blockchain-market-first/>,
accessed 25 January 2018.
Tan, L. (2017), ‘Don’t Rush into Investments Linked to Virtual Currencies’
[online article], The Straits Times, 13 August <.
com/business/invest/dont-rush-into-investments-linked-to-virtual-
currencies>, accessed 25 January 2018.
Taylor Vinters LLP (2017), ‘Initial Coin Offerings: To Regulate or Not to
Regulate?’ [website article], Lexology, 7 August <.
com/library/
accessed 25 January 2018.
Tian, C. (2017), ‘China’s Central Bank Vows to Push for Blockchain in
Five-Year Plan’ [website article] 27 June <
chinas-central-bank-vows-push-blockchain-five-year-plan/>, accessed
25 January 2018.
Torpey, K. (2017), ‘Regulators are Investigating ICOs in Switzerland where
$600 Million Has already Been Raised’ [website article], Forbes, 30
September <
regulators-are-investigating-icos-in-switzerland-where-600-million-has-
already-been-raised/#94e1e8018006>, accessed 26 January 2018.
Trotman, A. (2013), ‘Bitcoins Banned in Thailand’ [online article],
The Telegraph, 29 July <
currency/10210022/>, accessed
25 January 2018.
US Government (1933), Securities Act of 1933 <
about/laws/>, accessed 26 January 2018
US SEC (Securities and Exchange Commission) (2017a), ‘Investor
Bulletin: Initial Coin Offerings’ [website article], 25 July <https://www.
accessed
25 January 2018.
US SEC (2017b) Report of Investigation Pursuant to Section 21(a) of the
Securities Exchange Act of 1934: The DAO <
litigation/investreport/>, accessed 25 January 2018.
US SEC (2017c), ‘SEC Exposes Two Initial Coin Offerings Purportedly
Backed by Real Estate and Diamonds’ [online press release], 29
September <
accessed 25 January 2018.
US SEC (2017d), ‘Company Halts ICO after SEC Raises Registration
Concerns’ [online press release], 11 December <
news/press-release/2017-227>, accessed 25 January 2018.
US SEC (2017e), ‘SEC Announces Enforcement Initiatives to Combat
Cyber-Based Threats and Protect Retail Investors’ [online press release],
25 September <
accessed 25 January 2018.
US SEC (2017f), Order Instituting Cease-and- Desist Proceedings
Pursuant to Section 8a of the Securities Act of 1933, Making Findings,
and Imposing a Cease-and-Desist Order, <
litigation/admin/2017/>, accessed 25 January 2018.
US SEC (2017g), ‘SEC Emergency Action Halts ICO Scam’ [online press
release], 4 December <
release/2017-219>, accessed 25 January 2018.
Vincent, J. (2017), ‘China Bans all ICOs and Digital Currency Launches
as ‘Illegal Public Financing”’ [website article], The Verge, 4 September
<
coin-offering-regulation>, accessed 25 January 2018.
Zynis, D. (2013), ‘A Brief History of Mastercoin’ [Blog article], Omni Blog,
29 November <
history-of-mastercoin/>, accessed 25 January 2018.
34
PI-INITIAL-COIN-OFFERINGS
ACCA The Adelphi 1/11 John Adam Street London WC2N 6AU United Kingdom / +44 (0)20 7059 5000 /
