Late in October New Zealand’s Financial Markets Authority (FMA) released guidance on the regulation of initial coin offerings (ICOs) under NZ securities law.

In our November blog, we commented that the FMA’s guidance was pretty conservative, as they said that all tokens and cryptocurrencies are securities under the [Financial Markets Conduct] Act – even those that are not financial products. 

We felt that this stance would be unhelpful to NZ’s fledgling blockchain industry because it would result in NZ being perceived, internationally, as an unfriendly regulatory environment for blockchain ventures.

It appears that others have expressed a similar view to the FMA, as the Authority has recently updated its guidance to remove the blanket characterisation of ICO’s as securities.  The guidance now says that offers of tokens will only be regulated under the Financial Markets Conduct Act if:

• the token falls within one of the four categories of financial product regulated under the Act (debt securities, equity securities, managed investment products and derivatives); or
• the token falls within the residual definition of a security under the Act AND the FMA decides to declare the token to be a financial product under the FMA’s regulation making powers.

From a NZ law point of view, this isn’t a significant change, and in legal terms, the FMA is more or less saying the same thing using different words.

However, from an industry point of view, the change is a biggie.  Internationally, the bright line for regulation of ICO offers (or, at least, retail offers) is whether or not the ICO constitutes an offer of securities.  Regulation as a security has many implications for an offer, not just by requiring prospectus registration and disclosure, but it also brings potential requirements for the regulation of intermediaries and platforms involved in the offer process.  The FMA’s original blanket statement that all ICO’s/tokens are securities was likely to be off-putting to international participants in the burgeoning ICO industry, and had the potential to undermine efforts to attract some of that activity to New Zealand.

The FMA also made a few other subtle changes to the guide, which present NZ’s regulatory framework as being more open to ICO’s and cryptocurrencies.

Although the FMA’s guidance now has a friendlier vibe towards ICO’s and cryptocurrencies, it is still difficult to pick where the FMA will draw the line between a token or financial service that is regulated, and one which is not.  We understand that the FMA is thinking about publishing a second guide with specific examples of tokens and services which will be regulated, and examples which fall on the other side of the regulatory line.   We expect that this will follow the form of examples published by the Singapore regulator.

If so, as well as helping NZ blockchain entrepreneurs (and their lawyers!) to understand the thinking of the NZ regulators, it will be very helpful to international entrepreneurs thinking about NZ as a possible home for blockchain activity.