ICO regulatory update – misleading and deceptive conduct crackdown

With rising popularity in blockchain technologies in Australia comes ever growing interest and concern for Australian regulators. Over the last 12 months regulators from the Australian Tax Office (ATO) to the Australian Transaction Reports and Analysis Centre (AUSTRAC) have been developing regulations, implementing new legislation and issuing guidelines. The Australian Securities and Investments Commission (ASIC) is no exception.

While previously ASIC has been focused on the application of financial services laws to ICOs and crypto-currencies, ASIC’s latest release, published on 1 May 2018, demonstrates a new focus on misleading and deceptive conduct.

ASIC media release 18-22MR ASIC takes action on misleading conduct in ICOs serves as a warning to ICO operators that ASIC is and will continue to review whitepapers, websites and any other marketing material for misleading and deceptive conduct or statements. ASIC received delegated powers from the ACCC to take action under the Australian Consumer Law in relation to crypto-assets on 19 April 2018 and will take action to protect consumers where it has concerns, even if the ICO is not a financial product.

The media release notes that the crackdown on misleading and deceptive conduct is in addition to ASIC’s inquiries where it identifies potentially unlicensed conduct (for example where an ICO is a managed investment scheme). As a result of ASIC inquiries, some issuers have halted their ICO or have indicated that the ICO structure will be modified (because for example they are managed investment schemes).

Concurrently with the above media release, ASIC released an update to its information sheet regarding the application of the Corporations Act to ICOs. INFO 225: Initial coin offerings and crypto-currency covers a broader range of topics than its predecessor and reflects ASIC’s expanding role in regulating ICOs and crypto-currency. ASIC’s position on when a ICO will be financial product remains largely unchanged (you can see our previous update on the topic here), however of particular note about the updated INFO 225 is the inclusion of significant information relating to misleading and deceptive conduct, guidance on when a crypto-asset trading platform could become a financial market and information regarding financial products that invest in crypto-assets.

The key takeaway from these updates is that ASIC will be taking a keen interest in the operations of ICO and crypto-currency issuers. If you have an ICO or crypto-currency business, you should ensure that you seek appropriate professional advice and engage with regulators where appropriate.