The Philippines issues draft ICO rules and request for feedback

Under the proposed rules, the Securities and Exchange Commission will consider all tokens issued in ICOs as securities, unless the issuer can prove otherwise

What has happened?

The Philippines Securities and Exchange Commission (SEC) has published some draft rules for regulating initial coin offerings (ICOs).

What does this mean?

In a press release, the regulator explained that it will consider all tokens issued in ICOs as securities, unless the issuer can prove otherwise.

The SEC stated that issuers of ICOs conducted in the Philippines often claim that their tokens are not securities and therefore do not fall under the agency's jurisdiction.

However, the regulator believes that allowing this would be "dangerous to the investing public" who would be left without any recourse if the project turns out to be a scam.

"Therefore, the SEC will put the burden of proving that the tokens issued through an ICO in the hands of the proponents by presuming that the tokens are securities unless proven otherwise."

Further, under the draft rules, companies registered in the Philippines looking to run an ICO would have to submit an "initial assessment request" to the SEC at least 90 days ahead of the issuance.

The application should include details of the project team, a review of the ICO proposal and its credibility as well as a legal opinion from a third-party explaining why the token is not a security.

The SEC will then review the request within 20 days, which can be extended up to 40, and provide a report on whether or not the ICO token is considered a security.

The draft rules also explain that the ICO issuers can continue with their project even if the tokens are deemed securities, provided they complete a registration process and obtain the SEC's approval before any token sale.

The SEC also said that ICOs may be exempted from registration if the tokens are to be distributed to no more than 20 people or will be limited to institutional investors.

The regulator is inviting banks, investment house, the investing public and other interested parties to submit feedback by 31 August.

Next steps

If you want to take advantage of blockchain's huge potential and disruptive impact, while avoiding falling foul of ever-developing regulatory and legal requirements, visit our Hogan Lovells Engage Blockchain Toolkit.

Contacts
Mark Parsons
Partner
Hong Kong

 

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