ICO & Crypto-currency: Dos and Don’ts (II) – ICO Jurisdiction
【Roick Feng, Partner, Zhong Yin Law Firm】
Continuing from where we left off, this article will now take a look at the other three remaining Asian Tigers, apart from Korea, and their suitability as a safe haven for Crypto Currency.
The issue facing Crypto in Hong Kong and indeed, Hong Kong itself, is a lack of clarity in its identity. Hong Kong is the center of Asia’s capital market, it is a pond with deep waters suitable for “Big Fish”. In other words, it is a capital market brimming with international funds and investment banks and brokers etc., all large institutional players (vested interest holders). To maintain the interests of these enormous players, the capital market must have a set of rules which are acceptable, transparent and highly predictable. The rules of the Crypto world, however, are too out of control, difficult to understand and wholly unpredictable for these players. Accordingly, the Hong Kong Securities and Futures Commission, “HKFSC”, is conflicted on whether to welcome Crypto with open arms, maintaining a cryptic attitude of conservatism, suspicion and yet at the same time, inexplicably drawn along with the spectators to watch the show.
While Hong Kong has not officially banned ICOs and other Crypto related transactions, it has delisted or restricted several more controversial ICOs (eg. Blackcell). The primary legal reason remains the same, the controversial tokens are deemed to be similar in nature to Securities and/or Collective Investment Schemes, “CIS” (Note: In layman’s terms, Ponzi Schemes). The launch of these ICOs are equivalent to that of public offerings or public fund-raising of CIS and therefore, requires approval from the competent authority for that particular capital market. As such, currently, if other options are available, Hong Kong would not be my initial choice for an ICO launch. That being said, the foundational structure of the blockchain community in Hong Kong continues to grow and it will be interesting to observe whether or not changes in volume (good ICO projects increase) will result in changes in nature (relaxation of HKSFC attitude). (Note: I wager that as Hong Kong has no desire for Singapore to overtake the race, it must march forward towards liberation. Remember the competitive show of force demonstrated from these two governments over regulatory Sandbox?)
In many ways, Singapore is very similar to Hong Kong, with abundant large institutions and a financial regulatory framework prone to protect institutional investors. Professionalism of regulatory authorities and transparency of information are both quite high. While Hong Kong is the center for Asia’s Capital Market, Singapore is Asia’s Asset Management Center. Singapore’s unique characteristic is that a majority of financial activities are based on a buy side driven market. The unspoken secret of the regulatory authorities is the desire to entice wealthy individuals to select Singapore as its home base or Family Office by fulfilling their wealth management needs. So, Singapore naturally will continue to search for all types of assets that provide high returns to satisfy the demand generated from wealth management accounts. Of all the products out in the market, currently, the only shining light offering the highest yield is Crypto. I am of the belief that sooner or later, Crypto will be commonly accepted as a new class of assets in the wealth management market. Although some US and Chinese private equity funds have already allotted a portion of its portfolio to Crypto, with some even fully dedicated to Crypto investments, I believe that Singapore will be the first to accept Crypto as a new class of asset on a practical and widespread level.
However, it should be noted, that while the media appears to portray Singapore as a Crypto-friendly country, practical policy implementation appears to be in the opposite direction. For example, discussions are underway with regards to taxation policy on Crypto transactions, the Monetary Authority of Singapore, “MAS”, continuously warns investors against ICOs and Crypto, and MAS proactively providing examples on how to determine if a Crypto qualifies as a security etc. In light of this, I maintain a cautiously optimistic attitude when selecting Singapore as the ICO jurisdiction.
The Financial Supervisory Commission “FSC” and the Central Bank of Taiwan have repeatedly declared that cryptocurrency is a “commodity”, establishing a favorable framework for Crypto related activities (the FSC should be applauded for this decision). Although, in the past, the FSC has been “famous” for its conservative and inflexible attitude, as of present, not a single ICO has been delisted in Taiwan, which is a very heartening development. A large contributory factor is that the players in Taiwan are a bit more self-disciplined (a particular characteristic of the Taiwanese), and that the Taiwan capital and asset management markets have not established deep roots, reducing the anxiety and rejection encountered in other countries when the ultimate competitor, Crypto is compared with all other financial products. Furthermore, Taiwan’s blockchain and crypto development is quite well balanced and neither one has an advantage over the other. This has provided a fertile ground for Crypto activity growth in Taiwan. All of the above contributes to my belief that Taiwan is an attractive choice for ICOs and Crypto related transactions.
Nonetheless, the Taiwan FSC has always been known for its strict adherence to the law and justice. When faced with an activity which is innovative, fun, and not easily understood, and yet at the same time very speculative, the tendency for the FSC is to put it under the microscope. If the choice is to launch an ICO in Taiwan, there are certain lines which cannot be crossed. Legal risks which should be considered on the pathway to an ICO include, whether the ICO will be determined as a stock, beneficiary certificate or other form of security, whether it will involve a public offering, if it may come under the definition of deposit collection or fund raising activities promising high returns under the Bank Act, and if it will fall under the scope of restrictions of the Money Laundering Control Act, etc.
Now that risks have been brought to the forefront, the next few articles will provide an in depth analysis from various angles on Dos and Don’ts of practical aspects of ICOs. Please be on the lookout.