On September 13, 2018, the Securities and Exchange Commission (SEC) issued a memorandum announcing the extension for submission of comments on the proposed Initial Coin Offering (ICO) regulations. This was in view of the requests received by the Commission. Interested parties may submit their comments until September 30, 2018—a month after its original deadline which is August 31.
In August, the SEC released the draft ICO regulations for public comment. The proposed regulation covers the initial assessment requests and registration proper. In the draft, the Commission shall presume that all ICOs are security tokens unless proven otherwise. The process will involve an initial assessment done by the SEC upon submission of an initial assessment request by a company. Within 20 days, the SEC shall rule on the classification of the token.
This characterization of existing draft rules for ICO incited dismay among some players in the industry. Some expressed that by imposing this regulation, the distinct personality of cryptocurrency being a democratized financial platform may be crippled. This was evident during the event entitled “Enter Stellar,” which was held last August 13 specifically for the purpose of discussing the draft ICO regulations. During the event, some stakeholders expressed their opposing opinions on the current version of the draft.
Some of the notable players who submitted their position on the ICO regulations are Consensys Philippines, Philippine Association for Digital Commerce and Decentralized Industries (PADCDI) and Fintech Philippines. In his comment, renowned cryptocurrency legal expert, Atty. Rafael Padilla, commended the Commission for its bold move in developing a regulatory path for security tokens to be registered in accordance with law and for its attempt to propose a balanced regime in regulating the public offering of security tokens. Despite the commendation, however, he still expressed his hope that the SEC would remain agile and open-minded in such a case that the rules and regulations imposed do not address the true needs of the industry. While the draft is precise in its policy and requirements, there are still some minor issues needed to be raised. These are mainly:
- ICOs should be available to foundations. Non-stock corporations should be allowed to launch ICO. Since they are non-stock and non-profit, there is a greater need for them to have alternative fundraising mechanisms. They may use this to raise funds for their social, charitable, or scientific ventures.
- An ICO does not need to relate to a blockchain project. An ICO is not launched for the sole purpose of funding a blockchain project. There is no direct correlation between the two. ICO may be used in other fields such as the instance mentioned in the preceding statement.
- The Initial Assessment Request should contain only information relevant to the Utility / Security token question. The provision that requires the submission of immaterial documents should be deleted from the draft regulations.
- The motive of the utility token buyer should not be presumed. The assumption that all purchase of a utility token is motivated by profit must be challenged since utility tokens can be designed without features of a financial instrument.
- ICO rules should be aligned with the Full Disclosure Regime.
- There must be a refined policy on celebrity endorsement that requires disclosure of the nature, source and amount of compensation paid by the issuer in exchange of the endorsement.
- There should be a special accreditation regime for ICO platforms.
Any interested stakeholder is encouraged to submit his comment through email to email@example.com, firstname.lastname@example.org and email@example.com or by mail to the Markets and Securities Regulation Department, Securities and Exchange Commission, Secretariat Building, PICC Complex, Roxas Boulevard, Pasay City.