The crypto-market bonanza also does not escape from supervisors. But actually this market has never been unregulated. Here are a few basic rules that you as an entrepreneur have to take into account.
Initial Coin Offerings ( ICOs ) are the new gold . Every day you hear stories of freshly baked cryptomillionaires . And do you wonder why you are the only one who did not buy bitcoin, when it was worth as much as a bicycle. Because then you could have bought a house with that Bitcoin.
With a Garden. In London.
But, now ICOs have suddenly been banned in China. Completely forbidden.In the country with – nota bene – most blockchain activity (a block chain is the distributed database on which cryptocurrency is based). This came as a surprise to many. A shock for the market. The value of cryptocurrency plummeted .
On your top-hat
But actually you felt on your clogs that the unregulated crypto-market bonanza sooner or later would come under the attention of regulators. And a warning from the US watchdog SEC shows that supervisors are also not retarded. (The SEC also came into action against Slock.it this summer)
The gist of that warning: an ICO is in fact nothing more than new wine in old bags.
In the words of the SEC: This Report reiterates fundamental principles of the US federal securities and their applicability to new paradigm-virtual organizations or capital raising entities that use (…) blockchain technology to facilitate capital raising and / or investment (… ). The automation of certain functions through this technology (…) does not remove the purview of the US federal securities laws.
And because Initial Coin Offerings are nothing other than old wine, the old rules also apply. The crypto market has never been unregulated in hindsight . It is now up to the entrepreneur (and his legal advisers) to figure out what the old rules are exactly, and how they relate to the ‘new paradigm’. Well.
What do you do when you, as a Dutch entrepreneur, are planning an Initial Coin Offering (such asGuts Tickets )? And if you yourself have established that searching for relevant crypto-search terms on the AFM website gives ‘0 results’? And if you are not ready to put a battery of lawyers to work?
Then you read through for a moment – because then you will at least get insight into the basic rules that apply (or should apply) to all ICOs.
1. Anti-money laundering
If you are going to do an ICO, be aware that the criminal circuit also uses blockchains. There are extensive anti-money laundering rules for financial institutions. From these regulations you can deduce what is also sensible precautionary measures for your ICO. For example: thoroughly determining who your investors are, where they come from, what the origin of their capital is and who are the ulitmate beneficial owners .
If you would offer shares on the stock exchange, you must make a ‘prospectus’ available. That is a phone book in which everything – but also everything – is about the underlying company. At ICOs, no prospectuses are now accepted, but whitepapers.
Some of these whitepapers provide less information than an IKEA building plan. Do you prefer to do it neatly? Be thorough and give a lot of information: about your finances, your risks, the market, the people, the technology, the lunch and the office cat.
3. Misleading information
You do not have to gamble in your whitepaper. Or, legally, you must formulate an accurate offer to your investors, and you must provide information in good faith and not be misleading.
The bottom line is that whitepapers are written by marketers, copywriters and sellers. And they would like to receive promotional texts. As a result, whitepapers state that you get a ‘share’ in the ICO, with the right to ‘dividends’.
Sounds nice – like you become a bit owner of the company. But it is not right. You receive only one token, with a contractual right to increase value. Misleading, so. Can not.
4. Financial supervision
A ‘token’ is a vague concept. But if your token starts to look like a financial instrument (in the US: ‘security’), you will fall within the financial supervision rules.
That is again a telephone book in itself – but it comes down to the fact that it is better to start with the supervisor at an early stage …
5. Cyber security and privacy
It has already happened in practice: an ICO that was hacked. As an organizer you have a duty to take appropriate protective measures for the benefit of your investors. Their money must be safe with you.
And if investors provide personal data, you also need to protect them appropriately. If you do not do that, then you are liable for the harmful consequences.
Investors want to invest in an optimal fiscal way. Although they are (in principle) responsible for their own tax situation, you make life easier if you provide insight into relevant tax regimes. It’s quite a job, if you come from different countries.
A blockchain is by definition international. So it is important to clearly state within which jurisdiction your ICO falls. And that you also need to clearly communicate to the investors. Also remember that you are dealing with both America (SEC) and European rules (ESMA).
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