The island of Jersey is issuing new rules aiming at protecting investors who participate in Initial Coin Offerings (ICOs) according to the Jersey Financial Services Commission. A note from the commission states that, “Most ICOs are unlikely to be regulated by the JFSC. Instead, the JFSC places some conditions on an issuer of an ICO (an ICO issuer).”
The new conditions require all ICO issuers to file a Control of Borrowing Order consent with the commission so as to incorporate the issuer of the ICO as a company of the Island. Additionally, the issuers of the ICOs must also apply for counter-terrorism financing as well as anti-money laundering measures. Furthermore, they will need to manage risks of the retail investors who choose to participate in the ICOs.
All ICO issuers will also be required to inform investors about the risks related to ICO investing. They will need to attach the risk warning drafted by the commission stating, “Token sales or coin offerings are typically a highly speculative form of investment. Investors should be prepared for the possibility of losing their investment completely. Investment in token sales or coin offerings is not subject to existing capital market regulations and protections.I understand these risks and wish to proceed to purchase tokens or coins from [ISSUER NAME].”
The Jersey Financial Services Commission has also separated Initial Coin Offerings into two categories: security and non-security tokens. Security tokens have characteristics similar to those of equity and include rights to participate in profits of the ICO issuer. Non-security tokens are divided into two subcategories which are utility tokens (access products and services) and cryptocurrency tokens (acts as currency).
The commission, however, say that it’s willing to relax some of the conditions for most of the non-security tokens in areas when they are not deemed as securities. ICOs are now considered as the easiest way to raise funds, especially for crypto startups. Though, ICOs are very risky to invest in because of their volatile nature. Most ICOs fail and that’s why regulatory bodies are coming in either to regulate or ban them. The latest report on ICOs indicates that only 4% become successful. That means more than 90% fail. Most failed ICOs crash with investor funds missing and most of the organizers going into hiding.