Industry rejects new rules for ICOs

March 18, 2019
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A new regulatory framework for initial coin offerings proposed by federal government posed “a significant risk of fettering innovation”, according to a FinTech industry group.

Government is actively considering whether a completely new regulatory framework is needed to crackdown on initial coin offerings (ICOs).

ICOs are a new form of fundraising that involves an early-stage tech company creating its own unique ‘tokens,’ which are then sold to individuals in the market in exchange for cryptocurrency.

Australian regulators have struggled to work out how to apply existing regulations and laws to this “wild west” form of capital raising, and Treasury last month opened consultations with relevant stakeholders.

The issues paper considers whether an entire new set of regulations is needed to deal with ICOs, similar to the new regime implemented with crowdfunding.

In its submission to the consultations, FinTech Australia argues against the new framework, saying it is unnecessary and would stifle innovation.

“FinTech Australia does not recommend significant structural change, or a purpose built regulatory framework for ICOs and an ICO market at this time,” the submission said.

“This would pose a significant risk of fettering innovation, not the least because it is too early to predict the ultimate outcome for this technology,” it said.

The body is instead pushing for a requirement that all ICOs be registered in a similar way to the IPO regime, including “appropriate scaling for the complexity and size of the distributed ledger organisation, tech, rights and type of investor”.

In its submission, FinTech Australia said that a “clear regulatory framework” for ICOs is “essential to the growth of distributed ledger technology organisations and network economies based on distributed ledger technologies”.

Treasury this month held further meetings with regulators and stakeholders, including FinTech Australia.

It has previously acknowledged that new regulations could lead to “unnecessary legislative complexity and stifling of future innovation”.

“The costs of introducing a new regulatory regime must be outweighed against any potential benefits, particularly if the existing regime may be generally sufficient or where other measures could be taken to achieve policy goals,” the Treasury issues paper said.

“Some adjustments to the current regime could be considered in order to provide more regulatory certainty and remove any impediments to legitimate ICO fundraising.”

ICOs in Australia are currently governed by either Australian Consumer Law or the Corporations Act, with the ACCC recently transferring responsibilities to ASIC.

Some local tech companies have already moved away from Australia due to this regulatory uncertainty, FinTech Australia said.

“There will necessarily be uncertainty in some circumstances regarding which regime should apply. More specific guidance in this area would assist to create greater certainty and encourage distributed ledger technology organisations to remain in or move to Australia,” it said.

“In this regard, a considerable number of distributed ledger technology organisations have already relocated to other jurisdictions due to regulatory uncertainty.”

FinTech Australia said that it “broadly agrees’ with Treasury’s descriptions of the opportunities and risks associated with ICOs, but that it needs to view it as more than just a fundraising mechanism.

“These appear to be premised on an assumption that ICOs occur primarily for fundraising. FinTech Australia urges Treasury to consider and take into account the purposes for which tokens and ICOs are used, to ensure that the economic and social potential of this innovation is fully recognised,” it said.

“Distributed ledger technologies have the potential to radically reshape economies by altering the way in which asset ownership, deployment, management and exchange occurs.

“Early developers have a one-time opportunity to dominate these technologies, which can be equated to the way Google, Facebook and Amazon have taken over and now dominate so many sectors of the marketplace economy.”

“If Australia does not facilitate domestic innovation in this area, it will necessarily become a follower and price-taker, with implications for our balance of trade.”



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