SEC amended regulations regarding ICO Governance and advertising to enhance investor confidence and ensure necessary information is provided. Key points include check and balance mechanisms, token holder resolutions, and advertising compliance.
The Securities and Exchange Commission (SEC) has amended the regulations regarding the governance of the issuer of initial coin offering (ICO Governance) to enhance confidence in both fundraising and investment through ICOs.
In addition, the regulations governing ICO advertising have been revised to ensure that investors receive necessary information for making investment decisions. The amended regulations in both matters have become effective from 16 April 2024 onwards.
Earlier, the SEC Board passed a resolution approving in principle the proposed regulations related to ICO Governance, which aim to ensure adequate and appropriate mechanisms for protecting investors, promote the ICO issuer’s awareness and responsibility over project management for the benefit of digital token holders, as well as enhance confidence in both fundraising and investment through ICOs. The SEC Board also approved in principle the proposed regulations related to ICO advertising.
The SEC conducted a public hearing on the principles and draft regulations in February 2024. Most respondents agreed with the principles and the draft regulations. The SEC has therefore issued a notification specifying the amended regulations with the key points as follows:
Requirements regarding the check and balance mechanism to protect the rights of digital token holders
The ICO issuer must establish a check and balance mechanism and measures to prevent and manage conflicts of interest. Such mechanism and measures must be clearly outlined in the ICO filing. Additionally, specific significant matters require approval from the issuer‘s board of directors. This is to ensure that the board is committed and responsible for decision-making and the disclosure of information related to ICO projects;
Token holder resolutions
To improve the regulations regarding token holder resolutions and relevant procedures, the SEC has issued a set of rules involving methods and reasons for seeking votes from token holders, the determination of votes, and the organization of token holder meetings, etc. The regulations are in line with similar measures imposed on real estate-backed tokens;
ICO advertisement
ICO advertisements are required to comply with additional regulations. The advertisements must refrain from enticing or pressuring investors into uncareful investment decisions. Moreover, they must not imply guaranteed returns and appropriate warnings about investment risks must be included. In case of using or referring to external information, the advertisements must ensure that the sources of such information are reliable and clearly specified. Advertisements must also align with other relevant requirements such as those for marketing promotions and deduction related to advertising expenses.
Additionally, the issuer must ensure that third-party advertisers also comply with relevant regulations. Non-compliance with the advertisement requirements may lead the SEC to instruct the issuer to revise the advertisement content to ensure that investors receive accurate, comprehensive, factual and not misleading information.
The notification specifying the amended regulations above* has been published in the Government Gazette and has become effective since 16 April 2024.
