Isle of Man, a world leader in cryptocurrency
Regulatory oversight as a means of attracting business
The Isle of Man Financial Supervision Commission (FSC) has been quick to respond to interest in the area, announcing plans to apply anti-money laundering (AML) rules to the industry. The Isle of Man Government appears keen not to suffocate this evolving area with onerous regulation.
Bitcoin has received some bad press and there’s still some mysticism surrounding digital currency and what it is and why we need it, and a tendency to focus on risks rather than opportunities. Indeed, some operations found out that their treasury services were being withdrawn because of pressures from banks, just as the inaugural Crypto Valley Summit, aiming to showcase the Island as a front-runner in the sector, was opening. It is hoped that registration with the FSC will provide the integrity these start-ups so desperately need and, in turn, bring potentially lucrative business to the Manx economy.
Cryptocurrency on the Isle of Man
There are digital currency businesses that want to be regulated. Being accountable to a reputable supervisory body brings credibility, which is something the industry needs just to access basics, such as a lender willing to provide start-up funds or a trusting landlord to provide office space, as well as to attract customers.
The Isle of Man is already known for innovation and high-quality service in the financial services and e-gaming industries, so this seems to be a logical progression in expanding and diversifying its global business offering. This opportunity also accords with the regulatory objectives of the FSC, which include the reduction of financial crime and supporting the Island’s economy and its development as an international financial centre.
The financial regulator of the Isle of Man recently introduced changes to its policy governing the registration of companies in the cryptocurrency industry. The British Crown dependency in the Irish Sea is also tightening rules applicable to projects that conduct initial coin offerings (ICOs).
Registration update – rules for cryptocurrency businesses
Financial authority adopts stricter requirements
Cryptocurrency companies filing for registration under the self-governing territory’s Designated Businesses Act 2015 will be required to meet two new criteria.
The updated policy states that companies must have at least two directors who are residents of the island. In addition, registered entities must be managed and controlled from the Isle of Man. The new rules are designed to improve the oversight of businesses involved in cryptocurrency-related activities.
The Isle of Man Financial Services Authority (IOMFSA) believes that companies that are managed outside its jurisdiction or those that do not maintain a sufficient presence in the territory pose an “unacceptably high risk” of illegal activities such as money laundering or terrorist financing.
For a relevant sector company (other than a pure equity holding company), to have adequate substance it must ensure that local Directors (2) are appointed and that the Management and Control is in the Isle of Man, IOMFSA is placing the emphasise on the local Directors to ensure that the companies fully comply with local legislation.
In this matter of Substance Requirements, you can count on TBA to help you with all you will be needing through our own local associates.
How long will an application take?
An application may take considerably longer than 3 months to process if it is incomplete or if there are issues in relation to the applicant or any of its key persons that require further investigation before a recommendation can be made to the Board of the Authority. To ensure your application is processed as quickly as possible, it is important that you arrange for all the necessary forms and documentation to be completed as accurately as possible and submitted in a timely manner.
During the processing of your application, two-way communication with the Authorisations Division is essential. This dialogue will allow the Authorisations Division to gain a better understanding of the business, which may also speed up the application process.
We can also help you to incorporate in the Isle of Man or set up an Isle of Man holding company.
Security Token Offerings (STOs) – advantages
Are Security Token Offerings (STOs) the new Initial Coin Offerings (ICOs)?
Launching ICO
Funding a brilliant idea and turning it into a viable start-up isn’t an easy task. Some people ask friends and family for a contribution, while others might initiate a crowdfunding campaign or look for angel investors or VC’s to inject some much-needed capital into their business. Over the past three years however a new method of funding has emerged, and various entities have successfully raised funds, sometimes even only based on a whitepaper. What did they do? The answer is: they launched an ICO.
What is an ICO?
Launching an Initial Coin Offering (ICO) or Token Generation Event (TGE) is a way to raise funds for a blockchain based start-up in exchange for supplying tokens to investors. Participating in an ICO that issues utility tokens as an investor does not mean you generate equity or any other kind of asset from the company. Tokens issued are intended as an IOU or coupons which allows owners to exchange for future products or services.
Problems with ICOs
Financial Authority is issuing a warning regarding serious risks associated with Initial Coin Offerings (ICOs). While the IOMFSC recognises the potential of blockchain technology for financial services, ICOs are currently vulnerable to misrepresentation, fraud and manipulation.
ICOs may also be structured in such a way that they are not subject to supervision by the IOMFSC. In addition, due to their unregulated status and the anonymous nature of the transactions involved, ICOs are attractive for the laundering of money obtained by criminal means. The current hype surrounding cryptos and ICOs may blind investors to these risks. Because of these risks, there is a strong possibility that investors will lose their entire investment.
Security Token Offering
Security tokens are tokens which have attributes of a security. Generally, the following can be considered as a security token:
Tokens representing or giving the right to equity shares in a company/enterprise;
Tokens representing the right to share in profit or ownership in a company;
Tokens representing a loan or any other debt obligation;
Tokens which are backed by real assets like real estate;
Tokens representing a unit of a mutual fund or collective investment scheme;
Pre-functional utility tokens in the United States.
Security Tokens are well regulated
STO as a sustainable solution for blockchain companies to raise capital
Since security tokens are considered securities, they need to follow local securities laws which are very well established in most jurisdictions. This means that if you are conducting a public sale of security tokens, you will need to register your STO with the local securities regulator and provide very detailed disclosures as required for an Initial Public Offering (IPO).
If you are not taking the public route, then you need to follow the private placement route. Which means that you can raise funding only from Professional/Accredited Investors. Also, in some jurisdictions, the security tokens may be subject to restrictions on transfers such as minimum holding period or the need to transfer only to another Professional/Accredited Investor.
While ICO investors at utility token offerings do not acquire any rights or shares from the company they invest in, STO investors have more rights and can own shares similar to a regular business initiating an IPO.
Benefits of launching an STO compared to an ICO are:
Investors receive an asset-backed token because it basically is a share in the company.
The business is more sustainable as it is scalable.
It eliminates scam projects because it requires government compliance.
Our company licensing services
— What we do and do not do
Our company is EXCLUSIVELY engaged in assisting worldwide clients, either individuals or corporate entities, to get duly and properly licensed with local Regulators and Financial Authorities to get respective official licenses to legally carry out their cryptocurrency or financial related business activities.
TBA & Associates Tax Business Advisors does not provide or carry out any sort of Cryptocurrency or Financial services!
Disclaimer: While TBA & Associates strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact TBA Customer Services for advice on your specific cases.