20 December 2018
In an article posted on the SGX Regulator’s Column on 20 November 2018, Singapore Exchange Regulation (“SGX RegCo”) has shared what it expects of listed companies conducting an initial coin offering (“ICO”). An ICO is an offer of digital tokens or coins to investors which are paid for either with fiat currencies or other crypto-currencies.
SGX RegCo has clarified 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.
SGX RegCo’s main concern is how the issuer safeguards its own interest and that of its shareholders when it conducts an ICO. Among other things, SGX RegCo will require certain disclosures from listed issuers conducting ICOs in order to ensure shareholders of the issuer can make informed investment decisions. Additional requirements may apply depending on whether or not the digital tokens offered are construed as capital markets products under the Securities and Futures Act (“SFA”).
Issuers to consult SGX RegCo prior to ICO
SGX RegCo expects a listed issuer that intends to carry out an ICO to consult it beforehand. To facilitate the consultation process, the listed issuer is to provide a legal opinion on the nature of the digital tokens as well as its auditor’s opinion on the ICO’s accounting treatment. The opinions should come from reputable professional firms. SGX RegCo will provide a checklist to the listed issuer on the compliance matters to be addressed.
SGX RegCo requires the announcement of the ICO to include disclosures that would keep shareholders of the issuer apprised of the fund-raising, e.g. the rationale for, and risks (including operational, cyber security, manipulation, legal and reputational risks) arising from, the ICO, the use of funds raised and key milestones to be achieved in utilising the funds, and “know-your-customer” checks to be conducted to address money laundering and terrorist financing risks. With a view to enabling shareholders to make informed decisions about the issuer in respect of the ICO, the issuer may consider holding sharing sessions with shareholders to ensure they fully understand what an ICO entails for the issuer.
The listed issuer must also come to an agreement with its statutory auditors on the scope of the audit which should provide assurance that the ICO has been properly accounted for in their financial statements, and that associated risks have been adequately addressed and milestones on utilisation of funds raised have been adhered to.
Post-ICO, the listed issuer is expected to keep its shareholders informed of material information, the development of the ICO and digital tokens on a timely basis, as well as the use of ICO proceeds, among other such crypto-currency related disclosures.
Additional measures for ICOs of tokens construed as “securities”
The Guide to Digital Token Offerings issued by the Monetary Authority of Singapore (“MAS”) explains that MAS will examine the structure and characteristics of, including the rights attached to, a digital token in determining if the token constitutes a capital markets product regulated under the SFA.
MAS takes the view that digital tokens that can be used to pay for goods and services but which do not have additional rights attached to them, may not have similar characteristics as securities. Such digital tokens would not be regulated under the SFA.
However, if the digital tokens are construed as “securities”, prospectus registration requirements for offers of securities and licensing issues for dealing in securities would be required under the SFA. Additionally, SGX RegCo may require listed issuers to establish a subsidiary to carry out the ICO of such tokens.