All Tokens and Cryptocurrencies are Securities, says New Zealand Financial Regulator

All Tokens and Cryptocurrencies are Securities, says New Zealand Financial Regulator

New Zealand Financial Markets Authority(FMA) published a commentary on token offerings (ICOs) and cryptocurrency service on 25 October 2017.
The FMA declared that all tokens or cryptocurrencies are securities under the FMC Act – even those that are not financial products.

The following is adapted from the FMA official website
What are coin and token events?
Initial coin offers (ICOs) and token events are a form of fundraising where you receive tokens that carry certain rights, such as providing access to a new product or service, or an interest in an underlying asset or project.

Are they regulated?
The extent to which an ICO is regulated depends on whether a ‘financial product’ is being offered to retail investors in New Zealand (ie a ‘regulated offer’ is being made). The Financial Markets Conduct Act 2013 (FMC Act) sets out four types of financial product: debt securities, equity securities, managed investment products, derivatives.
Whether a token offered via an ICO is a particular type of financial product depends on its specific characteristics and economic substance.

Are tokens 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. For example, a project token giving investors voting rights and a share in the company and its profits could be designated an equity security. Any designation would likely be accompanied by an exemption to modify FMC Act disclosure and governance requirements.

The FMA also stated all New Zealand-based token or cryptocurrency issuer must comply to the following obligations:

  • be a member of a dispute resolution scheme if the financial services are provided to retail clients
  • be registered on the Financial Service Providers Register (FSPR) for each category of financial service you provide. Token or cryptocurrency issuers may be ‘operating a value transfer service’ or ‘issuing and managing means of payment’
  • pay the applicable fees and levies for the relevant categories of financial service you provide
  • comply with the fair dealing provisions in Part 2 of the FMC Act. These prohibit misleading conduct and deceptive statements being made in relation to financial services
  • comply with anti-money laundering obligations.

Source: New Zealand Financial Markets Authority