The British territory of Anguilla was sadly devastated by Hurricane Irma, which passed through the island back in September, but that has not stopped it from moving forward with an important new piece of legislation – an act to create a regulated environment for utility token-based ICOs. Shortly after this announcement, Gibraltar announced it would create a new ICO exchange in 2018, so the ICO market is INDEED starting to see regulated entities come into play, just not here in the US as of yet. Come on SEC, time to step up to the plate and get a regulated program going here in America, as well.
“The Government of Anguilla today announced its plan to enact the first cryptocurrency regulatory regime for registration of initial offerings of specified categories of cryptocurrency. The law, called the Anguilla Utility Token Offering Act (or AUTO Act), establishes the world’s first registration process for an offering of cryptocurrency.
This act will facilitate registration of clearly defined “utility tokens” that do not have the features of a security, and that have one or more “utility” features within the issuer’s current or proposed blockchain platform. There is currently no country promulgating a regulatory regime specifically for non-securities cryptocurrency offerings.
Recent development in new blockchain digital technologies and platforms—and the international proliferation of “initial coin offerings” (ICOs)—has given rise to a plethora of significant and novel legal issues for governments worldwide. The Government of Anguilla has observed initial coin offerings proliferate worldwide without clear regulation, and believes there is opportunity to provide clear guidance for both issuers of these new cryptocurrencies and the purchasing public.
Commenting on the new AUTO Act, the Honorable Victor Banks, Chief Minister of Anguilla, said: “We believe this new AUTO Act will help Anguilla become the leader in establishing best practices for cryptocurrency offerings, to protect the people of Anguilla and the participating public.” Anguilla has a long history with cryptocurrency, beginning with the island nation serving as host for the first International Conference on Financial Cryptography in the 1990s and leading to the first wave of cryptocurrency developers living in, and working from, Anguilla during the early 2000s. “We believe the AUTO Act would be a significant step in the right direction”, explained Chief Minister Banks, “to provide clearly defined rules and increased safety for the blockchain community.”
The Act permits specified Anguillian entities to apply to be registered to conduct a Utility Token Offering when following the disclosure review, approval and registration process for a proposed offering, which includes a technical and legal review of the entity’s “white paper” and other disclosure documents related to the offering. The white paper requirements include disclosure elements that are typical for registered capital offerings, but specifically tailored to apply to these types of projects, including company structure and location, business status, detailed project description, management background, technical and legal description of offered tokens, current ownership, use of proceeds, plans for protecting offering proceeds, anti-money laundering program, and risk factors for purchasing tokens.
The objective is a simple but effective standardized registration and disclosure protocol for blockchain projects wishing to issue utility tokens. These include a streamlined review and approval process requiring proper disclosure of information that should be material to purchasers of non-investment instruments. A sound balance is to be struck between meeting the information requirements of the purchasing public, and creating an accelerated but prudent process to meet needs of the fast-moving blockchain industry.
Anguilla will conduct a regular review of the effectiveness of the new Act, and will propose updates to keep up with the ever-evolving blockchain industry. In order to assist in these amendments, a Utility Token Offering Advisory Committee will be formed consisting of private sector participants from the blockchain field.
The law was conceived and authored by Ravi A. Bahadursingh, LL.B, LL.M (International Economic Law), TEP, Barrister (Gray’s Inn), an Anguilla finance and tax lawyer with Chancery Lane Chambers, and Randall W. Johnson, Esq., a U.S. securities and blockchain lawyer with Sinnott & Co., and a regulatory advisor to Cofound.it, one of the leading blockchain project incubators.
According to Mr. Bahadursingh: “In drafting this Act, we saw that tokens that were in effect “securities” are required to comply with the same international regulatory regime as all other securities offerings. However, there remained a large swath of non-security tokens with no clear guidance as to where they would fit in the emerging blockchain economy. Therefore, we focused our efforts on creating a safe and effective regulatory framework for non-security token offerings, which appear to represent a majority of the current capital raising activity within the blockchain community.”
As legislation such as the AUTO Act falls under the auspices of financial services, the Government of Anguilla is now seeking the final approval from the UK Government in order to implement the law within 30 days and begin accepting registration applications soon thereafter.
Blockchain is an emerging technology field that uses so-called “blockchain” technology to create decentralized, “trustless” (i.e., not required to trust a centralized source for verification), efficient networks for the transfer of value worldwide. Beginning with Bitcoin in 2009, more than 1,200 new cryptocurrencies (“smart contract tokens”) have been created for this new technology in order to create blockchain networks for a variety of business, financial, governmental, scientific, and social applications. More than $3.2 billion (at today’s value) has been raised for new blockchain projects through the issuance of blockchain “tokens” to the public by developers.