JFSC issues statement on ICOs in Jersey

Posted: 05/02/2018

The Jersey Financial Services Commission (JFSC) has been alerted to recent articles that claim that certain initial coin offerings (ICOs) are regulated by the JFSC.

The JFSC considers such statements to be misleading, and is issuing this statement to clarify the regulatory treatment of ICOs and to ensure that the public are fully aware of the role of the JFSC in respect of such ventures.

Most jurisdictions do not regulate ICOs. However, like any other Jersey company raising capital through the issuance of shares, a Jersey company issuing digital coins or tokens from Jersey would need to obtain a consent – Control of Borrowing (Jersey) Order 1958, known as COBO – from the JFSC in order to set up the company. 

The grounds on which the JFSC would determine whether or not to grant a consent under these circumstances is limited by statute, and the focus is primarily on whether potential investors have been provided sufficient information about the company and the risks of investing in it. 

The JFSC does not consider the financial standing of, or conduct risks associated with, the unregulated company selling such ICOs or the digital coins/tokens.

In November 2017, the JFSC issued a risk warning, explaining that ICOs, from wherever they are issued, tend to be unregulated and warning the public about the risks of 'investing' in them. It should be remembered that the price of the coins or tokens issued can go down as well as up.

When asked to give an Article 2 consent under COBO with the aim of enhancing transparency for investors who are making a decision whether or not to invest in an ICO offering, the JFSC would consider attaching the following conditions to any consent granted. Other conditions may be applied and every application is considered on a case by case basis.

• Marketing material produced by the Jersey company must contain clear consumer warnings highlighting that the ICO is unregulated and may result in substantial risks for investors. In particular, the consumer warnings must clearly state that:
  (a) ICOs are a highly speculative form of investment
  (b) Investors should be prepared for the possibility of losing their investment completely
  (c) This highly speculative form of investment is not subject to existing capital market regulations.

• We remind potential investors that the JFSC is protected by the Control of Borrowing (Jersey) Law 1947, as amended, against liability arising from the discharge of its functions under that law.

• It must be distinctly understood that, in giving Control of Borrowing consents, the JFSC takes no responsibility for the financial soundness of the company or for the correctness of any statements made, or opinions expressed, with regard to it.

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