Up until recently, the Australian Securities and Investments Commission has taken a hands-off approach to cryptocurrencies and digital currency markets. But last month it received delegated powers from the Australian Competition and Consumer Commission to take action under the Australian Consumer Law relating to cryptoassets.
As a result, the regulator has turned its attention to misleading or deceptive conduct in the marketing and selling of digital or virtual tokens via initial coin offerings.
“These offers can involve significant risks for investors that are often not disclosed or well understood,” ASIC says.
ASIC says it is making inquiries of ICO issuers and their advisers where it identifies conduct or statements that may be misleading or deceptive. This is in addition to its inquiries where it identifies potentially unlicensed conduct.
As a result of its inquiries, some issuers have halted their ICOs or have indicated that the ICO structure will be modified. ASIC has not said who they are.
The delegation enables ASIC to take action against misleading or deceptive conduct on the marketing or selling of ICOs, even if the ICO does not involve a financial product.
ASIC commissioner John Price says: “If you are acting with someone else’s money or selling something to someone you have obligations. Regardless of the structure of the ICO, there is one aw that will always apply: you cannot make misleading or deceptive statements about the product.”
ASIC has updated its information sheet on initial coin offerings and cryptocurrency. It says issuing and trading of cryptoassets, and specifically ICOs, must be conducted in a manner that promotes consumer trust and confidence and complies with the relevant laws.
Examples of misleading and deceptive conduct include:
- Using social media to generate the appearance of a greater level of public interest in an ICO;
- Undertaking or arranging for a group to engage in trading strategies to generate the appearance of a greater level of buying and selling activity for an ICO or cryptoasset;
- Failing to disclose adequate information about the ICO; and
- suggesting that the ICO is a regulated product or the regulator has approved the ICO if that is not the case.
ASIC says the fact that a token issuer describes the token as a utility does not mean it is not a financial product.
The information sheet explores the situations that would give rise to a cryptoasset being regarded as a financial product, a managed investment scheme, a share, a derivative or a financial market.
For example, in some cases ICO issuers may frame the entitlements received by contributors as a receipt for a purchased service. However, if the value of the digital tokens acquired is affected by the pooling of funds from contributors or use of those funds under the arrangement, then the ICO is likely to fall within the requirements relating to managed investment schemes.
If the rights attached to a token are similar to rights commonly attached to a share, such as if there appears to be ownership of the body, voting rights in decisions of the body or some right to participate in profits of the body, then it is likely that the tokens could fall within the definition of a share.