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Good Governance in DLT and ICOs | Crypto Lawyer

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 These are designed to look like academic papers, but are not peer reviewed and do not have any formal legal status.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. 

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 ( ie decline to act where not competent) and 
  • Aspiring to uphold proper standards at all times

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

The definiton of 'a Token' is a complex issue that is covered by the Author David Seigel ( who wrote Pull, a leading explanation of the Semantic Web, which in many ways is the forrunner of the current blockchain movement). In the the Token Handbook , David sets out the various different types of tokens in a technical manner which is beyond the scope of this article. It demonstrates however the difficulty that regulators face in defining whether or not a token is a security.

The Gibralter Financial Services ( Distributed Ledger Technology Providers) Regulations 2017 sets out the principles in Schedule 2. It is anticipated that these will be replecated around the world by other regulators who seek to assert control of this boyant market.



1. A DLT Provider must conduct its business with honesty and integrity.

2. A DLT Provider must pay due regard to the interests and needs of each

and all its customers and must communicate with them in a way that is

fair, clear and not misleading.

3. A DLT Provider must maintain adequate financial and non-financial


4. A DLT Provider must manage and control its business effectively, and

conduct its business with due skill, care and diligence; including having

proper regard to risks to its business and customers.

5. A DLT Provider must have effective arrangements in place for the

protection of customer assets and money when it is responsible for


6. A DLT Provider must have effective corporate governance


7. A DLT Provider must ensure that all of its systems and security access

protocols are maintained to appropriate high standards.

8. A DLT Provider must have systems in place to prevent, detect and

disclose financial crime risks such as money laundering and terrorist


9. A DLT Provider must be resilient and have contingency arrangements for the

orderly and solvent winding down of the business

For any advice and assistance for issues like these please do call Jeremy on 0844 2722322 or submit a comment below. Jeremy will come back to you at the earliest convenience.

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