Initial coin offerings in Jersey

13 December 2017

The Government of Jersey has stated its position concerning ‘initial coin offerings’ (ICOs). ICOs are a digital way of raising funds from the public by using distributed ledger or blockchain technology.

The Government supports the view that ICOs conducted through Jersey legal entities should only be open to companies and legal entities that are incorporated or registered and administered through the regulated financial services sector in Jersey.

Participants in ICOs are normally issued with digital tokens (coins) linked to a specific business or project. Participants will typically obtain the coins by transferring a certain amount of cryptocurrency to a blockchain-generated address supplied by those organising the ICO campaign. The coins may represent a share in a business or project, a right to use a particular piece of technology in the future or, in some cases, offer no explicit rights or discernible value at all.

The Government is committed to creating a modern digital economy in which innovation in the financial services and digital sectors can flourish. The Government is of the view that this approach to ICOs, by applying regulatory requirements (including anti-money laundering and countering the financing of terrorism requirements) to the regulated institution, strikes the appropriate balance between encouraging innovation in fintech and managing the risk of emerging technology.

Implementation of the policy will be achieved by applying current legislation and the Jersey Financial Services Commission’s Sound Business Practice Policy, which enables the Companies Registry to either add conditions to incorporation or registration of Jersey companies and legal entities or to simply not accept the application.

However, the Government will continue to examine the developments of regulatory regimes in this area to ensure that Jersey is best placed to take advantage of fintech opportunities.

In 2015, the Government and the Jersey Financial Services Commission consulted with the industry to introduce an appropriate and proportionate regulatory regime for virtual currency exchange. It was accepted when this policy was introduced that, while the policy demonstrated Jersey’s commitment to encouraging confidence and innovation in fintech, it was a stepping stone along the path of evolution for virtual currencies. It was also recognised that the innovative potential of distributed ledger and blockchain technology was significant in the development of fintech globally.

Jersey, along with other jurisdictions worldwide, continues to observe the rapid development of ICOs and associated developments in the area of virtual currency systems. The Government acknowledges that distributed ledger systems, including ICOs, can be significant building blocks of a modern digital economy, and the introduction of an appropriate and proportionate regulatory regime may encourage innovation. However, there are equally inherent regulatory risks where the development of new innovative technology concepts is concerned. In this regard, the Government, in line with others in the international community, continues to examine how to appropriately cover new concepts, such as ICOs, in the regulatory regime.

On 30 November 2017, the Jersey Financial Services Commission issued an investor warning in relation to ICOs as part of its statutory duty in seeking to reduce the risk of financial loss to the investing public. The warning was issued to highlight the risks involved for retail investors participating in ICOs. Equally, that warning noted that, depending on the form of the offer, ICO activity in Jersey may already be regulated in Jersey.