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PRIMER: ICO regulation in Asia

Lai, Karry.  ; London (Feb 13, 2018).

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This IFLR primer looks at a hot topic that is dividing regulators across the region

What is an ICO?

Initial coin offerings (ICOs) have caught the attention of investors and regulators alike.

An ICO is a method of raising money, like an initial public offering, where a company offers early investors some of the new cryptocurrency it is looking to launch in exchange for their financial backing (usually done via bitcoin, ethereum or in some cases fiat currency). Investors buying the new digital money are buying what are referred to as tokens in a new cryptocurrency project. The new cryptocurrency can then be sold or bought on cryptocurrency exchanges if the offering is successful.

There are three types of tokens and depending on which is used by the project company, they will be regulated differently. Tokenised securities, for instance, would in theory call for the supervision of a local financial regulator.

In Asia, China, Hong Kong, Singapore, Japan and South Korea are some of the most active jurisdictions in cryptocurrency trading, prompting regulators to make changes to existing laws. Some, such as China and South Korea, have banned ICOs, while others have issued clarification statements on ICOs, warning potential investors on the possibility of fraud.

Token sales fall in a regulatory area
What is happening to companies and people involved in ICOs?

This depends where the ICO takes place. 

Musheer Ahmed, general manager at the Fintech Association of Hong Kong observes that enforcement action around ICOs in various jurisdictions is likely to happen on two major fronts.

Firstly, fraud charges will be filed against ICOs that were scams and lacked any depth in their offering: for instance, if they fail to have a legitimate project backing them or if the company behind the ICO is deemed fraudulent. Some enforcement activity has already...