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New Zealand’s FMA: ICOs, cryptocurrency exchanges must be regulated

Oct 27 2017
By
Jonathan Smith

 New Zealand’s financial markets and services regulator, the Financial Markets Authority (FMA), has come out with a formal commentary on the hot topic of cryptocurrencies and Initial Coin Offerings (ICOs), noting that they are risky and must be regulated.


In its document FMA outlines the apparent risks of investing in ICOs and/or cryptocurrencies like them being a scam, or dealing with unregulated overseas entities, which are hard to track, in case something goes wrong.


In order to minimize risks, the providers of cryptocurrency services, such as exchanges, wallets and brokers, must be a member of a dispute resolution scheme, must be registered by FMA in the Financial Services Providers Register and must comply with fair dealing provisions in the Financial Markets Conduct Act. In other words, the cryptocurrency exchanges operating legally in New Zealand should comply with requirements, similar to those for the forex brokers.


On the other hand, it seems that the FMA has not come up with a firm view on ICO’s and whether they are a financial product or not, should be decided on case by case basis and depending on the specific characteristics and economic substance. Either way, “the FMA strongly encourages any businesses considering making an offer through an ICO to approach us early during their development phase.”


FMA becomes the latest national regulator to officially warn of the risks of ICOs and to take measures towards setting some order in this grey area. Earlier this year the  Monetary Authority of Singapore (MAS) and the Commercial Affairs Department (CAD) have come out with a joint statement warning the general public of the risks of the initial coin (token) offerings (ICOs) and investments in digital currencies in general. The same did the Dubai Financial Services Authority (DFSA).


At the same time, South Korea’s Financial Services Commission (FSC) and the Chinese regulators took even more drastic measures and forbade initial coin offerings (ICOs). The South Korean regulator is considering to prohibit margin trading on digital currencies, while China banned the local operations of the cryptocurrency exchanges in general, but did not ban margin trading on those instruments.


TAGS: new zealand  fma  ico  crypto  cryptocurrency 
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