The Australian Securities and Investments Commission (ASIC) has opted to start taking action against what it termed “misleading” initial coin offerings (ICOs) aimed at retail investors.
The corporate watchdog had been keeping its distance from the current world of digital currency trading. However, the recent proliferation of ICOs has forced ASIC to take a stance.
Revealing that it has already acted to rebuke several offerings in the pipeline, ASIC also confirmed that it has stepped in to investigate one ICO that already occurred.
ICOs are much like IPOs in the way that they attract attention, interest, and funding commitments before placing a product on the market for investors to trade and set the market price.
However, as is the case with many new technologies, there is yet to be enough competent regulation to properly maintain the fair and effective procedures needed to ensure that ICOs are all above-board. This is partly due to the fact that they have only started to take hold recently, and regulatory bodies have yet to decide how to act regarding them.
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Since looking into some of these proposals, ASIC considers some of them to have fooled investors with “misleading” claims. It believes that some ICOs should not be able to go ahead in their current form.
Some of the most consistent problems that ASIC discovered include a lack of licensing from the appropriate financial services as well as the incorrect and inappropriate use of “misleading and deceptive” messaging used in promotional materials.
The watchdog has decided to intervene now, as it values the idea of ICOs and does not want to dismiss them as a tool out of hand. ICOs are proving increasingly popular in raising capital funds for startups. However, if investors become legitimately concerned over poor practice, then this could undermine the entire process and dent confidence in the sector.
ASIC Commissioner John Price said that there are “important legal obligations” that have to be respected if a startup company wants to attract investment through an ICO and “raise money from the public”. These include being honest in all external communications around what an investor will receive and contribute to as well as making sure that all the correct regulatory channels are in place.
At present, it seems that there is little guarantee that all ICOs are going down the right path, and a clear set of advisory procedures needs to be in place to help ensure that such a useful tool for attracting capital can grow in stature.
Price said that some of the ICOs shown to the public are actually illegal, as the proposed investments were unregistered. He noted that the “legal substance of your offer” is the most important aspect that his body has to deal with and said that this is of far more importance than “what it is called.”
Since intervening in April 2018, ASIC confirmed that it has already had to prevent five different ICOs from launching and will not allow them to do so until they find a way of proving legal compliance.
ASIC also said that the nature of this new capacity to raise funds could easily be inappropriate if the right procedures are not followed, which would undermine investor trust. Price said that while “there are genuine businesses using this structure, many have turned out to be scams.” Some regulatory attention will hopefully help investors decide which ICOs are trustworthy and enable the technology to grow safely.