Japanese research group proposes ICO guidance for consumer protection
The legal position of ICOs in Japan remains unclear and tax and accounting issues are especially prevalent.
A Japanese research group consisting of financial institutions, government representatives and venture enterprises has put forward a proposal for rules to inform initial coin offerings (ICOs) and token sales.
The ICO Business Research Group has released a report which calls for rule-making on ICOs. The report notes that the legal position of ICOs in Japan remains unclear and that tax and accounting issues are prevalent.
ICO is still in its infancy and has no industry practices yet. Appropriate rules must be set to obtain public trust and expand as a sound and reliable financing method.
ICO Business Research Group
For the purposes of the report, ICO refers to all financing activities using cryptocurrency, including preliminary sale activities. The research group surmises that there are three primary entities conducting ICOs; ecosystems, large companies and venture companies. However, the group admits ICO deals may diversify in the future.
For the permeation and development of ICO, it would be desirable to set rules on “issuance of tokens” and “trading of tokens in the issue market.” As for the purchase and sale of tokens in the trading market, there are certain rules set force in the Payment Services Act. However, there are no laws or regulations stipulating explicit rules for issue markets, which leads to cases of misunderstanding between parties and cases of investors being left without protection.
ICO Business Research Group
Principles and guidelines on the issuance of cryptocurrency tokens
The ICO Business Research Group proposed the following principles, focused on innovation and flexibility.
Issuance Principle 1: Issuers should define and disclose conditions for the provision of conveniences such as services and rules on the distribution of procured funds, profits, as well as residual assets, to investors of tokens, shareholders and debt holders.
Issuance Principle 2: Issuers should define and disclose a means for tracking the progress of white papers.
In addition to these principles, the group proposed the following guidelines related to practical operations.
Guideline 1: ICOs should be designed to be acceptable to existing shareholders and debt holders.
Guideline 2: ICOs should not become a loophole in existing financing methods as equity finance.
The group also gave five trading principles for the protection of investors when purchasing and selling tokens.
Principle 1: Token sellers should confirm the identity (Know Your Customer: KYC) and suitability of customers.
Principle 2: Administrative companies that support the issuance of tokens should confirm the KYCs of issuers.
Principle 3: Cryptocurrency exchanges should define and adopt an industry-wide standard on token listing.
Principle 4: After tokens are listed, unfair trade practices such as insider trading should be restricted.
Principle 5: Issuers, administrative companies and exchanges should make efforts to ensure cybersecurity.
Earlier this month, the Securities and Exchange Commission (SEC) charged an ICO, Centra Tech, and its co-founders with fraud, after the startup raised more than $32 million from thousands of investors in 2017.
Social media platform Twitter has prohibited the advertisement of cryptocurrency ICOs and token sales, following in the footsteps of fellow networking giant Facebook and global technology company Google.
Low-cost carrier AirAsia is considering entering the cryptocurrency space through the launch of an initial coin offering (ICO) which would become part of the Southeast Asian airline’s BIG Loyalty frequent flyer program.
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