Date added: : 24.11.2017

Tokens are classified as securities in New Zealand

In October 2017, the financial authority of New Zealand promulgated certain provisions on the regulation of ICO-companies.

The Financial Markets Authority of the country made relevant clarifications for the owners of ICO-companies, answering the most prevalent questions.

It was stressed that the specifics of ICO regulation directly depend on whether a "financial product/commodity/utility" is offered to retail investors of New Zealand.

 

Let’s recall that in accordance with the Financial Markets Act of 2013 (FMC Act) 4 types of financial products are distinguished:

  • debt securities;
  • shares;
  • managed investments;
  • derivative transactions/deals.

Token refers to securities if investors have the right to their free resale for fiat money with all rights of ownership.

For example, a token associated with a dollar or commodity exchange rate can be a security if:

  • investors can purchase a token for money;
  • investors owning a token have the right to buy it out for fiat money;
  • an investor who owns a token is not the actual owner of the funds by means of which the redemption payments are made.

The FMA outlined the basic requirements for providers of tokens and companies participating in the cryptocurrency market. The following obligations also apply to exchanges, private brokers and electronic payment systems:

  • if the company serves private clients, it needs membership within the dispute settlement scheme;
  • registration in the Register of New Zealand Financial Services Providers is required for each type of such services;
  • provision of services or supply ofproducts must be carried out in accordance with the Financial Markets Act;
  • complying with the legal conditions for money laundering.

The FMA notes that ICO-companies are not added to the class of crowdfunding ones in New Zealand, and do not require special licensing, in contrast to the latter.

For additional information on the new regulatory environment for ICO in New Zealand, please contact the lawyers of Law&Trust International.