The Australian Securities and Investments Commission has published new guidelines about cryptocurrencies and initial coin offerings.

Its new information sheet (INFO 225) speculates about the effect that the Corporations Act 2001 might have on firms that are considering raising funds through an initial coin offering (ICO) and to other crypto-currency or digital token (referred to as ‘crypto-asset’) businesses. This information sheet warns that for ICOs and crypto-assets that are financial products, the Corporations Act has some provisions against misleading and deceptive conduct.

For ICOs and crypto-assets that are not financial products (ASIC does not consider Bitcoin to be a financial product), the same prohibitions against misleading or deceptive conduct apply under the Australian Consumer Law.

Conduct that may be misleading or deceptive to consumers can include:

• the use of social media to generate the appearance of a greater level of public interest in an ICO;
• undertaking or arranging for a group to engage in trading strategies to generate the appearance of a greater level of buying and selling activity for an ICO or a crypto-asset;
• failing to disclose adequate information about the ICO; or
• suggesting that the ICO is a regulated product or the regulator has approved the ICO if that is not the case.

Australian law and regulations may apply even if the ICO or crypto-asset is issued or sold by a foreign entity, but the note is not explicit about that.

An ICO might, according to its features, be a 'financial product' in the terms of the Act. It might qualify because it is a managed investment scheme, with people contributing money or assets (such as digital currency) to obtain 'interests' in the scheme. For this to qualify, some of the contributions must be pooled or used in a common enterprise to produce financial benefits or interests in property - an exciting prospect for some HNW investors. The contributors must not have day-to-day control over the operation of the scheme but, at times, may have voting rights or similar rights.

It could also qualify if it is an offer of shares or an offer of a derivative.

The sub-text behind these guidelines is the fact that the Australian Competition and Consumer Commission has sloughed off the job of forestalling skulduggery in ICOs and cryptocurrencies to ASIC.