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Good Governance in DLT and ICOs | Crypto Lawyer

As Bitcoin flys through the $15,000 barrier, and the ICO market develops into a feeding frenzy, regulators around the world act like rabbits caught in the headlights as they struggle to encourage innovation but still protect investors and the public from losing their money in unregulated schemes. 

In the absence of guidance from the FCA or SEC on the conduct of ICOs, a group of UK experts have come together and published the London Token Fundraising Initiative which sets out the principles of good governance that shoudld be followed by promoters of ICOs.

One shinning example however is Gibratlar who have set themsevles up as the global centre for this new tech. In October the Government published the Financial Services (Distributed Ledger Technology Providers) Regulations 2017 together with a corresponding Bill for an Act to amend the current legislation. The new regulations are due to come into force in 2018 and are designed to provide an efficient pragmatic and safe framework for firms engaged in Distributed Ledger Technology based businesses such as Bitcoin exchanges. 

The issuing of Tokens has become the hottest topic in this space, as the SEC seek to impose the ‘Howey’ test to decide whether or not a token issue is in fact a security ( or investment) which would require a full prospectus to be issued, something that many issuers of ICOs which to avoid at all costs. The current practice is to issue ‘a white paper’ or ‘grey paper’ which informs people about the general plan. These are designed to look like academic papers, but are not peer reviewed and do not have any formal legal status.

It is the view of the author that good practice should include the issue of a prospectus which informs potential purchasers of tokens about important information such as the business plan, whether or not there are financial systems in place, the details of the directors and whether or not there is any technology that has been developed for the project. 

There are many different forms of token that can be issued. A very useful guide has been written by David Siegel called the Token Handbook, (the author of the book ‘Pull’ which dealt with the semantic web, a movement some 10 years ago that was in many ways the forerunner of current blockchain thinking). This is a complex subject which is beyond the scope of this blog article.

The London Token Fundraising Manifesto was published on 23rd October. It provides a dual manifesto, an ethical framework and a personal code for token issuers. 

The ethical framework calls for Autonomy, Beneficence, ( tokens should serve a useful and necessary commercial or social purpose), Honesty, Non- Maleficence (reducing the risk of failure)  Transparency and Justice. 

The Personal Code calls for token issuers to be:

  • Trustworthy 
  • Dutiful
  • Lawful
  • Careful
  • Unconflicted
  • Competent 
  • Contained and 
  • Aspiring

The author of this blog is one of the signatories to the manifesto.

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