DIGITAL TOKENS Je f rey Maddox Partner jmaddox@jonesday.com Ben Witherall Associate Nicholas Dimitriou Associate Jones Day, Singapore The Singaporean perspective on initial coin and digital token o f eringss In its ruling on 25 July 2017, the United States Securities Exchange Commission (‘SEC’) stated that US securities laws may apply to o f ers, sales, and trading of interests in virtual organisations and applied the test set out in SEC v. W.J. Howey Co. (the ‘Howey Test’) to determine whether a digital token issued by a virtual organisation named The DAO constituted a security under US securities laws (it found that it did) (the ‘SEC Ruling’). On 1 August 2017, in the wake of a recent surge in the number of initial coin (or digital token) o f erings (‘ICOs’) held out of Singapore as a means of raising funds, the Monetary Authority of Singapore (‘MAS’) followed the example of the SEC by making an announcement (the ‘MAS Announcement’) on its position with respect to digital tokens and o f erings thereof in Singapore, as Je f rey Maddox, Ben Witherall and Nicholas Dimitriou of Jones Day, explain. The MAS Announcement made the SFA and the Financial Advisers (or crypto) currencies, blockchain following points explicitly clear: Act (Cap. 110) (‘FAA’); and technology and ICOs, consideration is • Any platform facilitating secondary required as to the interplay between • As with many jurisdictions around trading of such Tokenised innovation, the inherent risks of schemes the world, the MAS does not Securities would have to be a MAS involving digital tokens and the current regulate virtual currencies; approved exchange or a MAS regulatory landscape in Singapore. • Digital tokens are not, by virtue recognised market operator. of their digital, decentralised or What is an ICO? cryptographically secured nature A Consumer Advisory on Investment Simply put, an ICO is a fundraising (or otherwise) excluded from being Schemes Involving Digital Tokens from method used by a project, venture or able to fall within the definition of a the MAS and the Commercial A fg airs decentralised application (or ‘dApp’) ‘security’ under the Securities and Department (‘CAD’) followed the MAS whereby digital tokens are issued to ICO Futures Act (Cap. 289) (‘SFA’); Announcement highlighting what the participants typically in exchange for • Where a digital token or type of MAS and the CAD see as inherent other digital tokens such as bitcoin or digital token falls within the SFA’s risks in investments into digital tokens Ethereum’s ether. ICOs are comparable definition of a ‘security,’ issuers and provided guidance as to what to both initial public o fg erings on a of such digital tokens (‘Tokenised they consider to be a responsible stock exchange and crowdfunding Securities’) would, unless exempted, approach to such investments. initiatives in that they raise funds be required to lodge and register a from the public, albeit that in ICOs, prospectus with the MAS prior to the Despite the risks involved, ICO investors receive digital tokens as o fg er of such Tokenised Securities; participants have collectively invested opposed to equity shares or rewards. • Issuers and intermediaries close to $2 billion through ICOs up of such Tokenised Securities to August 2017. With exponential What are digital tokens? would, unless exempted, also be growth in interest (including from In the MAS Announcement, the MAS required to be licensed under the mainstream companies) in virtual broadly described digital tokens A Cecile Park Media Publication | September 2017 7
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