It seems as if global regulators were taking aggressive steps against ICOs this week. On Monday we had the news that the Chinese authorities were banning ICOs for the general public. Then the day after there was word that South Korea could be considering similar actions.
However, there appears to be much more promising news from the other side of the world. In Canada, the regulator in Quebec (AMF) is taking an active role in studying the need for blockchain technology. AMF has also stated that a token sale by Impak finance is a security and have even accepted the company into their regulatory sandbox.
This will make Impak Finance the first ICO that can launch in the AMF's sandbox. This is also an important milestone as it will be the first ICO that is fully regulated in Canada which is a sign of possible things to come. The approach of trying to understand the tech and hence effectively regulate it seems to be the most responsible way forward.
This will not only apply to individuals in Quebec but also to the broader Canadian start-up ecosystem. This is because of the financial passporting rules that are in place across the Canadian provinces.
What is the Sandbox?
The Sandbox was a joint collaboration between a group of provincial securities regulators. It was created with the purpose of providing backing to those start-ups that don’t necessarily fit into the current regulatory framework for fundraising.
After having taken part in the scheme, the president of Impak had this to say about their participation in the Sandbox.
I had been working with the regulators for several years prior to Impak Coin, and I knew that they were keen in adapting their regulatory framework to catch up with the cryptocurrency sector,
Although this is indeed promising, it does seem as though this was done more out of necessity than choice. It was clear that Impak coin met the definition of a security from its very structure. Individuals who took part in the ICO would pool their funds into a common investment with the goal of generating a profit.
What is clear though is that this is a test case for the AMF. If Impak coin proves to be a successful then many others are likely to follow suit.
Impak will not have to register as a securities dealer as long as they meet certain terms and conditions. These include completing a certain degree of Know Your Customer (KYC) reporting requirements.
When a product is characterized as a security then it must complete a prospectus. However, given the unique nature of the ICO, the AMF decided to waive this requirement for Impak.
The AMF has approved the Impak token for a two year test case. Once the two years has completed the various stakeholders will meet again to decide how things should progress in the future. Patrick Theoret, director of the AMF stated that they would be willing to extend the exception provided the agency received no complaints.
It is a Discovery Process
The AMF also made clear that the regulatory sandbox provided them with a way to test a relatively new concept. It would allow them to better understand a start up that they are not used to seeing. Although it was a "traditional" ICO with a whitepaper etc, there was no other precedent for the regulator to use.
Sophie Jean, director of supervision of intermediaries at the AMF mentioned that
This was very, very novel because we had to apply the principles of regulation to the filer and provide the filer with a tailor-made order providing terms and conditions for the distribution of the digital currency
It seems as if the AMF was just acting according to their remit given by the CSA guidance that was issued on the 24th August. This guidance laid out the circumstances under which tokens would be considered securities.
The news from the AMF and Impak is indeed a positive development and shows that Canada is trying to embrace new technology in a responsible way. The AMF also wanted to show the significance of two stakeholders working together in a collaborative manner. One can only hope that other regulators looking into ICOs would do the same.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.