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BY CNA Team - November 21, 2018

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SGX clarifies ICO stance

SGX RegCo CEO Tan says rules apply to the listed company conducting ICOs and not over the tokens unless deemed securities
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The Singapore Stock Exchange’s (SGX) regulatory arm has spelled out some rules to clarify how companies listed on the island-nation’s stock exchange can conduct initial coin offerings (ICOs).

Singapore Exchange Regulation (SGX RegCo) CEO Tan Boon Gin says in a Nov 15 write-up in the stock exchange’s “Regulator’s Column” that the rules apply to the company offering the ICO only.

“First off the bat, it is important to make clear that even if an SGX-listed company is the issuer of a digital token, those tokens are not listed on SGX.  Therefore, SGX’s rules would cover only the company and not the tokens nor the holder of the tokens,” he pointed out.

Tan made clear that issuers must consult SGX RegCo prior to offering the ICO to ensure that shareholders of the issuer can make informed investment decisions.

SGX RegCo will require disclosures such as the nature of the token and auditor’s opinion on the ICO’s accounting treatment.

Other disclosures include the rationale and risks of conducting the ICO, the use of the funds, key milestones, know-your-customer checks as well as impact on existing shareholders’ rights.

The regulator retains the right to require additional opinions to ensure that the relevant statutory requirements will be complied with.

“We will also provide a checklist to the listed issuer on the compliance matters that should be addressed,” Tan says.

Disclosures when the issuer initially announces the ICO includes the rationale and risks of conducting the crowdfunding; the use of the funds as well as key milestones; know-your-customer checks, accounting and valuation treatment for the ICO, use of existing issuer funds for conducting the ICO,

“The issuer can also consider holding sharing sessions with shareholders to ensure that they fully understand what an ICO entails for the issuer, thereby enabling shareholders to make informed decisions about the issuer in respect of the ICO,” Tan says.

The issuer must also keep shareholders informed of material information, the development of the ICO and tokens on a timely basis.

Tan did not discount that the tokens being offered may be construed as “securities/capital market products” under the Securities and Futures Act, in which case there could be additional measures that apply.

These additional measures include prospectus registration requirements, licensing for dealing in securities and the possibly the establishment of a subsidiary to carry out the ICO.

Tan says issuers should refer to the Monetary Authority of Singapore’s (MAS) guide on whether a token is a security.

MAS has taken the view that tokens used to pay for goods and services but with no additional rights attached to them may not have characteristics similar to securities.

Tan stressed that the regulator’s main concern is how the issuer safeguards its own interest and that of shareholders.

“Listed companies planning to issue ICOs must seek legal, financial and other relevant professional advice,” he says adding that the board of directors is ultimately responsible for maintaining a robust system of risk management and internal controls.

Image courtesy of SGX website.

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