A Short Guide to Global ICO Regulation by Country

In this post we give an overview of ICO regulations in the US, China, Switzerland, Singapore, the UK and Russia.

In 2018, ICO fever gripped the investment world and seems to be getting more severe with every passing day. Over $6.2 billion has been raised during ICOs since the beginning of 2018 against $6.1 billion for the whole of 2017. Investors and entrepreneurs around the world are fascinated by this fundraising phenomenon and are looking for ways to benefit from it.

An ICO might look like an easy way to get rich overnight both for investors and startup projects, but the issues start when it comes to regulation and legal compliance for this new type of fundraising.

Due to the nascent nature of the ICO phenomenon, regulation of the industry is still patchy and local, with lots of uncertainty and vague, contradictory requirements imposed by different jurisdictions.

We have prepared a short overview of regulatory regimes in the most important markets across the globe to help our readers better understand the requirements and avoid pitfalls and potential legal issues.

Unites States of America

In the USA ICOs are allowed, but are heavily regulated. While the rules may vary from state to state, most of ICOs are required to register with the SEC and obtain a license, mainly if their token can be classified as a security. In December 2017, the Security and Exchange Commission voiced concerns about poor investor protection. The US Department of Justice actively monitors all ICOs marketed and conducted in the country to make sure that they comply with regulatory requirements and punish those who don’t.

Who is in charge: the Security and Exchange Commission

What is the applicable law: The Securities Exchange Act of 1934

What is regulated: tokens classified as securities under the Howey test

Who shall obtain permissions: token issuers and exchanges where such tokens are traded, investors and intermediaries.

Singapore

Singapore’s regulator, the Monetary Authority of Singapore, or MAS, issued a guide to digital token offerings, where it is said that some tokens may be regarded as securities and thus shall comply with the regulations applicable to traditional securities. Also, MAS monitors the market and conducts research to see if any further guidelines or regulation is necessary.

Who is in charge: Monetary Authority of Singapore

What is the applicable law: Securities and Futures Act, the Financial Advisers Act

What is regulated: tokens classified as securities in accordance with the “Guide to digital token offering” of November 2017

Who shall obtain permissions: token issuers and exchanges where such tokens are traded, and intermediaries.

Switzerland

Switzerland is one of the few countries with a friendly approach towards cryptocurrencies and ICOs. Famous for its mild banking regulation, the country attracts thousands of ICO projects that look for clear regulation and strong ties with traditional financial institutions. Swiss authorities have plans to develop a regulatory environment that will protect solid ICO projects from aggressive rules and requirements that suffocate the market.  The Financial Market Supervisory Authority ( FINMA) announced that it was going to investigate all ICOs launched under Swiss jurisdiction to see if some of them may fall under the existing regulations.

Who is in charge: Financial Market Supervisory Authority

What is the applicable law: Swiss Securities Law

What is regulated: token, classified as securities on a case by case basis

Who shall obtain permissions: token issuers and exchanges where such tokens are traded.

The UK

The British Financial Conduct Authority (FCA) is somewhat positive towards ICOs and cryptocurrencies in general as it doesn’t see them as a potential threat to the financial system. The regulator created a fintech sandbox to attract innovation and investment capital to the country and become a global hub for financial innovations. Currently, there are several blockchain startups in the sandbox. They work on cryptocurrency-based financial solutions backed by the regulator. Meanwhile, FCA issued a warning about risks related to ICO investments.

Who is in charge: Financial Conduct Authority

What is the applicable law: Britain Securities Law

What is regulated: tokens classified as securities on a case by case basis

Who shall obtain permissions: token issuers and exchanges where such tokens are traded.

China

China has the most restrictive approach towards ICOs. The Chinese authorities banned all activities related to this type of fundraising on the ground that they destroy the financial system of the country. Moreover, they required that all the money received from investors by way of ICOs be returned. People’s Bank of China considers ICOs as illegal public financing and prosecutes any company or individual that violates the ban. However, according to several reports, China’s authorities are working on a set of ICO rules that will take effect in 2018 and effectively lift the ban.

Who is in charge: China Securities Regulatory Commission,  People’s Bank of China

What is the applicable law: not applicable

What is regulated: token allocation is forbidden

Who shall obtain permissions: permissions are not provided

Russia

ICOs are currently allowed in Russia. However, there are still many regulatory uncertainties surrounding this type of fundraising. The authorities plan to introduce laws that will define the legal framework for ICOs and cryptocurrencies later this year. The draft proposal suggests that strict regulation, including hard caps for unqualified investors, the requirement to disclose legal and operational details to governmental bodies, and licensing. In some cases, securities law may apply to ICOs.

Who is in charge: Working group of State Duma in cooperation with the Finance Ministry and the Central Bank of the Russian Federation

What is the applicable law: Draft regulations, no applicable law just yet

What is regulated: to be defined by the upcoming legal framework

Who shall obtain permissions: to be determined by the upcoming legal framework

 

When a project launches a token sale campaign, its team has to take into account regulatory differences across the globe and make sure that they comply with the rules applicable both in their jurisdiction and in the jurisdiction of their potential investors. So, for example, some countries are closed for token sales, and the projects are not allowed to solicit investors there.

In order to spend significantly less time and efforts on the issues related to legal compliance, you can use COINAdmin services. The project is aimed at providing the full software functionality necessary for token sale management, which will allow you to focus on the most important thing: creating a ready-to-use product.

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