The rapid rise of initial coin offerings (ICOs) this year has prompted heightened scrutiny by regulators globally. On 4 September 2017, seven major regulators governing the finance and technology sectors in China (collectively, the Chinese Regulators), jointly published an announcement prohibiting ICOs in China.
The following day, the Hong Kong Securities and Futures Commission (SFC) also made a statement on existing regulations which could be applicable to ICOs and explained that digital tokens may be “securities” as defined in the Securities and Futures Ordinance, and accordingly subject to the securities laws of Hong Kong. The SFC also warned investors of the potential risks of ICOs.
The announcement by the Chinese Regulators and the statement by the SFC follow similar clarifications and announcements by regulators in the US, Canada, Singapore, Malaysia, Thailand and Dubai, among other jurisdictions, about their respective positions on ICOs. To date, the Chinese Regulators have been the only ones to issue an outright ban. You can read our e-bulletin on the Monetary Authority of Singapore’s position here.
The UK Financial Conduct Authority also issued a consumer warning on 12 September 2017 stating that “ICOs are very high-risk speculative investments” and investors “should only invest in an ICO project if [they] are an experienced investor, confident in the quality of the ICO project itself (eg, business plan, technology, people involved) and prepared to lose [their] entire stake”.
In our recent e-bulletin, we highlight the key points in the announcement by the Chinese Regulators and the statement by the SFC and set out our observations on the future of ICOs. If you wish to discuss this further, please do not hesitate to reach out to our Greater China team (the contact details of which are set out in the bulletin) or your usual Herbert Smith Freehills contact.