On August 13, 2018, Philippine-based blockchain lawyer, Rafael Padilla, presided the open discussion during the “Enter Stellar” event about the draft ICO regulations released by Securities and Exchange Commission (SEC). He encouraged the participants to actively voice out their thoughts and opinions about the matter.
One of the purposes of this event was to gather as much input as possible from the community and include them in the position papers on the ICO regulations that will be submitted to the regulator. The following industry leaders were included in the panel:
- Colin Goltra – Coins.ph
- Gregor Arn – Acudeen
- Johan Sten – Stargazer
- Mark Vernon – Tagcash
- Ramon Tayag – Bloom Solutions
Republic Act no. 8799, also known as the Security Regulation Code (SRC), defines securities as shares, participation or interest in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments, whether written or electronic in character.
Atty. Padilla started by stating that the draft regulations clearly understands the difference between a security and a utility token. He reminded the audience that a utility token can also function as a security token as they are not mutually exclusive. The dominant concern was the proposition that the burden of proof shall fall unto the company registering the Initial Coin Offering (ICO). Companies vying to register have to immediately justify that what they are offering are not security tokens. This could be a huge undertaking, especially for small
start-up companies. Mark Vernon of Tagcash expressed that the reason why people invest in ICO is to earn money through the expected increase in its price. This nature of the ICO essentially makes it a security. Nevertheless, he continued by saying,
“I want SEC to take into account the reason of an ICO after the initial sale without saying it’s automatically a security, that’s a wrong move.”
In Singapore, the Monetary Authority of Singapore (MAS) requires all ICO companies to register on the premise that tokens are generally not regulated (utility tokens) unless they can be construed as securities.
This notwithstanding, the SEC remains to treat ICO as if it is a security in the general sense of word as defined by the SRC. The Commission requires a lot of unnecessary documents in the initial assessment such as a waiver from the issuing company and its team members to allow the commission to check all their bank accounts and review their financial capacity. SEC seems to put up more barriers around the technology that ultimately aims to give people more freedom in their finances.
One interesting point raised by Colin Goltra was the fact that a token is capable of growing beyond a single entity or beyond the organization that created it. This is evidenced by what happened to Ethereum. Thus, it should not be considered a security.
Atty. Padilla struck a balance in the discussion by introducing arguments in favor of the SEC, and by saying that the draft ICO regulation essentially gives the country a framework to register security tokens which is more lenient than the regulation required from an ordinary company filing a registration to security.
The community shares the same burning passion for democratizing financial inclusion. The common sentiment is that regulations may cripple the enablers of this technology. Atty. Padilla, on the other hand, sees this proposal as an opportunity. He focused on the idea that the regulation may actually work in the country’s favor. He pointed out that regulation could make the Philippines one of the few countries who registers security tokens, therefore making it a safe place to launch an ICO token.
The incoming regulation for this industry can be a double-edged sword depending on its provisions and its implementation. The community is hopeful that it will strike a balance between protecting the people and fostering innovation.
Overall, the discussion was very fruitful and interactive. PADCDI has submitted its position paper and has included some of the points that have been discussed in this meet-up. BitChikka would like to commend Atty. Padilla for his efforts in organizing such event.