New Zealand’s Financial Markets Authority publishes guidance on ICOs and cryptocurrency services, as the FMA wants to "facilitate responsible innovation, and ensure that the regulatory regime remains relevant and agile".
Initial coin offerings
The extent to which an ICO is regulated depends on whether a "financial product" is being offered to retail investors in New Zealand. The Financial Markets Conduct Act 2013 sets out four types of financial product:
- debt securities
- equity securities
- managed investment products
The FMA further explains each type of the product in detail. What's important, it has been clearly stated that all tokens are to be considered securities.
All tokens or cryptocurrencies are securities under the FMC Act – even those that are not financial products. A security is any arrangement or facility that has, or is intended to have, the effect of a person making an investment or managing a financial risk. If appropriate, we can designate any security to be a particular financial product based on its economic substance.
The FMA guidance
The guidance also highlights that crowdfunding in the form of an ICO is not the same as crowdfunding covered by the FMC Act. The FMA licenses crowdfunding platforms to provide an intermediary service via a facility, such as a website, where companies make offers to retail investors. Crowdfunding under the FMC Act enables companies to raise up to $2 million in any 12-month period, without registering a PDS.
It is stressed that the ideas regarding the possible regulation of ICOs and token offerings include creating a new category of prescribed intermediary service similar to the equity crowdfunding model. This would require law reform and that can take a long time.
Tokens and cryptocurrencies that are not financial products or services must comply with the Fair Trading Act 1986 to the extent that they are “in trade.” Notably, the Fair Trading Act also applies to tokens and cryptocurrencies that are offered in New Zealand but based overseas.
The FMA points out that the FMC Act does not cover crowdfunding via ICOs, and encouraged stakeholders to engage in conversation with the regulator “early in the development phase if you’re considering making an offer.”