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We are receiving a lot of enquiries from NZ startups, and more established tech companies, about the legalities of NZ companies raising investment via an ICO.

The likely legal treatment of an ICO offered to the general public in NZ (as opposed to wholesale or other excluded investors) is still a work in progress.  The Financial Markets Authority’s guidance on this topic, which the Authority updated late last year, is helpful but far from definitive (see our December blog for more on this topic).

However, a NZ company wishing to raise funds via an ICO is unlikely to be targeting the NZ public.  The big money invested into ICO’s is coming from international investors already participating in ICO, token and cryptocurrency markets.

The disclosure (prospectus) requirements of NZ’s securities laws do not apply to offers of securities outside NZ.  So NZ companies seeking funding only from international investors will not need to wrangle with the NZ law or the FMA’s guidance.  (Unfortunately this doesn’t mean NZ companies escape the need for legal advice altogether – specialist crypto-centric advice will still be needed on compliance with international securities laws.)

Although the bulk of NZ’s securities laws will not apply, there are still a couple of things to be aware of:

  • if the ICO is an offer of a financial product, then the fair dealing rules of the Financial Markets Conduct Act will apply. These rules prohibit the making of false, misleading or unsubstantiated statements in the marketing of financial products. ICO White Papers will be caught by these rules if the token on offer constitutes a financial product, which means the FMA would have the power to ban a White Paper by a NZ company (and take other punitive action) if it contained false, misleading or unsubstantiated statements
  • NZ companies that deal in cryptocurrency have difficulty opening or maintaining NZ bank accounts, as local banks are very concerned about money laundering risks. Companies thinking of raising money via an ICO will need to talk to their bank to see if raising money via an ICO will create issues with the banking relationship. You are likely to need to carry out know your customer procedures in respect of all participants in your token offer.

We expect to be talking with the FMA about ICO’s and NZ legal requirements as the year progresses.  We will continue to blog on this topic as new information becomes available.

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