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This article is written by Shashwat Dhyani. In this, he discusses, in brief, the cryptocurrency in various countries and how they could be incorporated in India.


The most common way of raising funds for companies is through an Initial Public Offering (IPO), in which capital is generated by selling of shares to investors, by which the investors get certain voting and ownership rights in the company. Another way of raising funds, which has gained a massive following in the past few years, is through an Initial Coin Offering (ICO). ICO is a fundraising tool, in which investors are offered tokens or coins in return for their investment. It is mainly used by start-ups in order to easily and efficiently raise funds, in contrast to other rigorous capital raising processes.

1The main reason why ICO has become such a popular means of raising funds is because of its two main characteristics: First, ICOs are decentralized, with no single authority governing them. Second, ICOs are largely unregulated. Hence, as a result of decentralization and a lack of regulation, ICOs are much freer in terms of structure than IPOs.

It commences with a white paper (containing the details regarding the technicalities, plan, capital required, etc) being issued. A target is kept in mind before starting with the offering with regards to the funding. The ICO is considered successful if the target is met, otherwise the money invested is returned. In certain cases, investors may use pre-existing cryptocurrencies (such as bitcoin) as a form of payment and in other cases, may use official fiat currencies (such as US Dollar).

However, along with huge prospects of profits, ICO brings with it certain risks, on account of it being unregulated. The group, the International Organization of Securities Commissions (IOSCO), has issued a 2notice regarding the potential risks with respect to ICO. It has warned that the increased targeting of ICOs to retail investors by parties often located outside an investor’s home jurisdiction which may not be subject to regulation or may be operating illegally in violation of existing laws has raised investor protection concerns.

In order to protect gullible investors from being scammed and defrauded, some countries have introduced certain guidelines while others have completely rejected this idea.

A look at the regulatory mechanisms (if any) incorporated by various countries with respect to ICO:


Though the popularity of Crypto/Virtual currency or ICO hasn’t gone unnoticed; India still seems to be a bit sceptical about the whole concept. There is no regulatory mechanism to govern/regulate cryptocurrency or ICO in India. Though not declared illegal per se, RBI through certain press releases has clarified its stance on ICOs.

  • Vide 3press release (dated Dec 24, 2013), RBI cautioned the users, holders and traders of Virtual currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.
  • Vide 4press release (dated Feb 01, 2017), RBI stated that it has not given any license/ authorization to any entity/company to operate such schemes or deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk.

With regards to Virtual Currencies, the Government had constituted an 5Inter- Disciplinary Committee to examine the framework existing in India. No report has yet been submitted by the committee. In the meantime, the Reserve Bank of India took strict action through its 6notification dated April 06, 1018, in which it has notified that entities regulated by the Reserve Bank shall not deal in VCs or provide services which include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer / receipt of money in accounts relating to purchase/ sale of VCs. As a consequence to this, a petition was filed by the Internet and Mobile Association of India (IAMAI) on May 22, 2018, challenging the April 06, 2018 RBI notification that prohibited banking services from dealing in virtual currencies. The SC refused to impose a stay and indicated that it would reconvene to pass further judgement. The government is likely to issue detailed guidelines on cryptocurrency, in consultation with SEBI, RBI and AIMAI.


Swiss Financial Market Supervisory Authority (“FINMA”) governs all the Financial transactions in Switzerland. Any company seeking money from investors to generate funds has to take authorization from FINMA by fulfilling certain statutory requirements. FINMA has essentially been supportive of ICO, which consequently resulted in a trend of growing numbers of ICOs in Switzerland. So in order to make the regulatory framework more transparent, FINMA issued certain 7guidelines on how it would deal with enquiries regarding ICOs. The essential characteristics of the guidelines are as follows:

  • To enable FINMA to respond quickly to ICO related enquiries, the ICO organizers need to define and document clearly the terms and conditions of their planned ICO.

In the Indian context, a similar provision might be beneficial to remove any vagueness and possible discrepancies that might arise eventually in cases related to ICOs.

  • On the basis of underlying economic function, tokens have been classified as:
  • Payment Tokens: These are intended to be used as a means of payment for acquiring goods or services or as a means of money or value transfer and gives rise to no claims on their issuer.
  • Utility tokens: These tokens are intended to provide access digitally to an application or service by means of a blockchain-based infrastructure.
  • Asset tokens: These represent assets such as a debt or equity claim on the issuer. These tokens are analogous to equities, bonds or derivatives. These also include tokens which enable physical assets to be traded on the blockchain.

These tokens are not mutually exclusive. Asset and utility tokens can also be classified as payment tokens (“hybrid tokens”). Thus, these tokens are deemed to be both securities and means of payment.

  • Classification of tokens as securities:
  • Payment tokens would not be treated as securities as they are designed to act as a means of payment and are not analogous in their function to traditional securities.
  • Utility tokens would not be treated as securities if their only purpose is to provide digital access rights to an application or service. However, if the utility token is issued for the purposes of investment or investment being one of the purposes for issuance, then it would be treated as securities.
  • Asset tokens would be treated as a security.

In Indian context, “Securities” have been defined under clause (h) of section (2) of Securities Contracts (Regulation) Act, 1956 and includes: shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate”. If Digital tokens are brought within the ambit of “securities” in India, then they will have to comply with the provisions of Securities Contracts (Regulation) Act, 1956 and Companies Act, 2013, such as provisions related to listing the securities in a recognized stock exchange and also complying with the listing requirements of such stock exchange. This would consequently provide transparency in listed security transactions.

  • Applicability of the Collective Investment Schemes Act: The provisions of the Collective Investment Schemes Act would be applicable only if the funds accepted in the context of an ICO are managed by third parties.

In Indian context, under the Securities and Exchange Board of India, 1992, a Collective Investment Scheme involves pooling of contributions, or payments made by the investors, with a view to receive profits, income, produce or property, wherein the contribution and investment is managed on behalf of the investors and the investors do not have day to day control over the operation of the Scheme.

If the ICO is deemed of the nature of a Collective Investment Scheme, then consequently it will have to comply with the provisions of SEBI (Collective Investment Scheme) Regulations, 1999, such as under section 3 and 5, the offeror has to obtain a certificate under these regulations and also make an application to the board for the grant of registration.

  • Classification as Deposits

As the issuing of tokens is not generally associated with repayment claims, tokens will not be considered as deposits. However, if the tokens have a debt capital character (e.g. promises to return capital with a guaranteed return), then license under the Banking Act of Switzerland will have to be obtained.

In Indian Context, under Banning of Unregulated Deposit Schemes Bill, 2018, which has been approved by the cabinet to be introduced in the parliament, ‘Deposits’ has been defined as “an  amount  of  money  received  by  way  of  an  advance  or loan or in any other form, by any deposit taker with a promise to return whether after a specified period or otherwise, either in cash or in kind or in the form of a specified service, with or without any benefit in the form of interest, bonus, profit or in any other form.” If the funds generated during an ICO come within the ambit of ‘deposits’, then it would have to comply with the provisions of the above-mentioned bill (if and when it becomes an Act) and thus would have to get registered with regulators listed in the bill such as Securities and Exchange Board of India under the Securities and Exchange Board of India (Collective Investment Scheme) Regulations, 1999.

In addition to this, under the Companies Act, 2013, and the Companies (Acceptance of Deposits) Rules, 2014, ‘deposit’ includes “any receipt of money by way of deposit or loan or any other form, by a company”. Hence, if it is deemed that a company is accepting deposits, they would further have to comply with the regulations of the above-mentioned act and rules such as appointing one or more trustees for the depositors and providing for security by way of a charge on the assets.


On 13th March 2014, the Monetary Authority of Singapore (“MAS”), in a 8publication stated that it will regulate virtual currency intermediaries, as virtual currency being anonymous in nature is vulnerable to “money laundering and terrorist financing (ML/TF) risks”. As the number of Initial Coin Offerings in Singapore grew substantially, MAS published a 9clarification on 1st August 2017, stating that the digital tokens would be regulated by MAS if “digital tokens constitute products regulated under the Securities and Futures Act”. Most recently, on 14th November 2017, MAS published a 10guide which provides “general guidance on the application of the securities laws administered by MAS in relation to offers or issues of digital tokens in Singapore.”

Salient features of the guide

  • Classification as Capital Market Products

A digital token may be regulated by MAS if it is a capital product market, which under section 2(1) of the Securities and Futures Act (“SFA”) includes “securities, futures contracts, contracts or arrangements for the purposes of foreign exchange trading, contracts or arrangements for the purposes of leveraged foreign exchange trading”.

MAS will examine the structure and characteristics, to determine whether a digital token is a capital market product or not.

In the Indian context, as has been mentioned earlier, if the Tokens are treated as “securities”, they will have to comply with the provisions of Securities Contracts (Regulation) Act, 1956 and the Companies Act, 2013.

  • Classification as Units or Securities in a Collective Investment Scheme

Offers of digital tokens which constitute securities or units in a Collective Investment Scheme will be subject to the same regulatory mechanism under Part XIII of the SFA, as offers of securities or units in a Collective Investment Scheme.

In Indian Context, if the digital token is deemed to be ‘unit’ of a Collective Investment Scheme, then according to section 3 and 5 of the SEBI (Collective Investment Scheme) Regulations, 1999, the offeror will have to obtain a certificate under these regulations and also make an application to the board for the grant of registration.

  • Money laundering and terrorist financing(ML/TF)

Tokens which do not come within the regulatory framework of MAS would still be subject to other legislation so as to combat money laundering and terrorist financing concerns. MAS thus highlighted in particular:

  • Obligations to report suspicious transactions under section 39 of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act.

MAS also intends to establish a new payments services framework (“New Payments Framework”) that will govern ML/TF issues related to virtual currency transactions.

In the Indian context, under Section 2(1) (wa) of Prevention of Money Laundering Act, 2002, “reporting entity” has been defined as “banking company, financial institution, intermediary or a person carrying on a designated business or profession”. Pursuant to Section 12 of the same act, “a reporting entity is under the obligation to furnish to the Director information regarding such transactions.” Such an obligation, if extended to virtual currency transactions combined with a similar “New Payments Framework” can help curb the menace arising out of Money laundering and bring about more accountability in the Cryptocurrency arena.


 On April 1, 2017, an amendment to the Payment Services Act of Japan (PSA) came into effect, introducing a regulatory regime for virtual currency (VC) businesses in Japan. After the amendment “only business operators registered with competent Local Finance Bureau are allowed to operate virtual currency exchange service”.

On April 5, 2018, Centre for Rule-Making Strategies at Tama University, a government-backed study group has published a 11report for the regulation and legalization of Initial Coin Offerings in Japan. The report aims at establishing ICO “as a sustainable financing method” as well as to enable ICO to obtain public trust. The salient features of the report are as follows:

  • Two proposals on the issuance of tokens:
  • Issuers should clearly disclose the conditions with regards to the distribution of funds and profits to token investors and shareholders. The idea is that the rights and obligations relating to the investors should be clearly defined prior to issuance.
  • Issuers should further disclose a method to track the progress of white papers. The idea is to make the investors explicitly define a way to allow investors to track the progress of the plans stated in the white paper.

In the Indian context, guidelines relating to disclosure of conditions for profits and funds to the investors along with disclosure of a way to track the progress of the plans will be immensely valuable so as to prevent ambiguity at the later stages of the ICO and to protect the investors from being potentially duped and defrauded.

  • Additional principles to protect investors regarding the purchase and sale of tokens:
  • Token sellers should confirm the identity (Know Your Customer: KYC) of customers.
  • Administrative companies that support the issuance of tokens should confirm the KYC of issuers.
  • Virtual currency exchanges should define and adopt a minimum standard on the token listing.
  • After tokens are listed, unfair trade practices of such tokens such as insider trading should be restricted.
  • Parties related to the trading of tokens such as issuers, administrative companies, and token exchanges should make efforts to ensure cybersecurity.

In the Indian context, a provision for KYC (“Know your customer”) will prevent the risks of money- laundering. Virtual currency exchanges should be allowed to operate after compulsory registration with competent financial regulatory authorities such as SEBI (“Securities and Exchange Board of India”). Consequently, unfair trade practices such as Insider trading should be restricted by bringing it under the scope of SEBI (Prohibition of Insider Trading) Regulations, 2015.


In the Philippines, the SEC (Security and Exchange Commission) has approved 12draft rules for initial coin offerings (ICOs). The draft rules were published on April 2, 2018, with a view to provide a registration mechanism for the Initial Coin Offerings. The salient characteristics of the proposed rules are:

  • The assessment process comprises two steps: Initial assessment and Registration proper.
  • All ICOs conducted within the Philippines are required to undergo an Initial Assessment after submitting an Initial Assessment request with documents (including the whitepaper and the description of the ICO project), where such issuer shall have the burden to prove that the tokens are not security tokens ( i.e., tokens that satisfy the definition of securities under the Securities Regulation Code(SRC)).
  • After the receipt of the documents, the SEC will have 20 days to assess whether the tokens are security tokens or not. If the SEC is of the opinion that the tokens are indeed security, then the issuer will have to register the ICO.
  • The issuer of a security token shall keep the proceeds of the ICO under an Escrow and the Escrow agreement shall provide: a) the proceeds shall only be withdrawn after presentation of the Issuer’s work progress report, b) the escrow agent shall return the proceeds to the investors if the soft cap (minimum amount of money a cryptocurrency can receive from investors) of the project is not reached or on a pro rata basis if the issuer abandons the project before completion.
  • The commission may also reject the application for registration if it is of the opinion that the project may “infringe public policy, injure investors or violate these rules or any of the laws, rules and regulations implemented by this commission”.


 Virtual currency regulations have been enforced in Thailand via a 13royal decree on Digital Asset Businesses B.E. 2561, which took effect on May 14, 2018. It defines cryptocurrency as digital assets which have to be registered with the Securities Exchange Commission of Thailand. On June 4, 2018, The Securities and Exchange Commission (SEC) of Thailand 14announced a regulatory framework regarding the sale of digital tokens through ICOs. The ICO regulations would be governed under the Digital Asset Management Act BE 2561 which regulates cryptocurrency in the country. In the announcement, SEC gave support for the issuance and offering of digital tokens via ICO which would take effect from July 16, 2018.

The regulatory framework would involve ICO portals, which are basically electronic systems designed to screen the characteristics of digital tokens which are to be offered during the ICO, the qualifications of the issuers as well as the information disclosed through the ICO portal.

  • The first step would involve screening of ICO portals by the Securities and Exchange Commission (SEC). The applicant for the ICO portal must be a Thai company which has a registered capital of not less than 5 million baht.
  • Then accredited “ICO portals” will be in charge of selecting applicants to pass to the SEC for a final screening
  • After being approved by the ICO portal, the SEC would consider the application of those who wish to issue ICO.
  • The total amount sold to investors must not exceed 4 times the shareholders’ equity or not more than 70% of the total offering value.
  • Payment by the investors may be in the form of Thai baht, Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Ripple and Stellar.


It can thus be vehemently said that the dawn of virtual/ cryptocurrency has brought forth a revolution in the traditional ways of conducting business, which though risky, can do wonders if properly and effectively regulated. Various other countries have acknowledged the significance of this virtual medium of exchange and have endured losses in order to effectively control and regulate it. Therefore, it is high time that India learns from the mistakes of its peers and acknowledges the potential of cryptocurrency rather than turning a blind eye to it.


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3) (Reference from: “RBI cautions users of Virtual Currencies against Risks”: press releases, Dec 24, 2013,, last accessed on September 18, 2018)

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6) (Reference from: “Prohibition on dealing in Virtual Currencies (VCs)”: Notification, April 06, 2018, , last accessed on September 18, 2018)

7) (Reference from: “Guidelines for enquiries regarding the regulatory framework for initial coin offerings (ICOs)”, February 16, 2018)

8) (“MAS to Regulate Virtual Currency Intermediaries for Money Laundering and Terrorist Financing Risks”, March 13,2014, , last accessed on September 20, 2018)

9) (“MAS clarifies the regulatory position on the offer of digital tokens in Singapore”, August 01, 2014, , last accessed on September 20, 2018)

10) (“A Guide to Digital Token Offerings”, November 14, 2017, , last accessed on September 20, 2018)

11) (“Call for Rulemaking on ICO Proposal by ICO Business Research Group”, April 5, 2018, , last accessed on September 24, 2018)

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13) (“EMERGENCY DECREE ON DIGITAL ASSET BUSINESSES B.E. 2561 (2018)”, , last accessed on September 26, 2018)

14) (SEC News: “SEC issues ICO support”, July 4, 2018, , last accessed on September 26, 2018)


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