SEC fine-tunes cryptocurrency offer rules

The Securities and Exchange Commission has fine-tuned its proposed guidelines on initial coin offerings (ICOs) to allow, among others, the cross-registration of foreign entities and alternative compliance to the escrow requirement.

The proposed rules will govern the conduct of ICOs wherein convertible security tokens are issued by startups or registered corporations organized in the Philippines and startups or corporations organized abroad and conducting ICOs targeting Filipinos through online platforms.

The latest draft now seeks to allow the registration of security tokens by nonresident foreign companies if the security tokens have been registered in another jurisdiction, provided that the following conditions are met: There is an information-sharing arrangement in place between the SEC and the competent regulator in the jurisdiction under the laws of which the issuer is organized or where it has its principal place of business that is applicable to the issuer; the security tokens are registered in another jurisdiction and the issuer provides sufficient proof of such registration and regulatory framework of the jurisdiction where registered, and the registration is subject to reciprocity.

If these conditions are not met, the foreign issuer will be required to create a branch office in the Philippines.

The earlier draft required the ICO issuer to keep the proceeds under escrow with a reputable independent escrow agent. The proceeds can be withdrawn only upon the presentation of the issuer’s work progress report. The escrow agent will return the proceeds to the investors in case the soft cap of the project is not reached or in case the project is abandoned by the issuer before completion.

The latest draft added a chapter on the details of the escrow requirement—such as the appointment of an escrow agent, duties and reportorial requirements of escrow agent, dissolution of the escrow relationship—and allowed alternative compliance that will also achieve the same purpose.

In case of project abandonment, it also required the escrow agent to submit a copy of the notice of such project abandonment to the SEC.

The latest draft also revised the legal opinion requirement to allow issuer opinion that the tokens are security and removed the requirement of independent counsel to issue the same during the initial assessment phase.

The revised draft also allowed amendments to the white paper and other documentary requirements initiated by the token issuers during the initial assessment and registration proper phase. It also required that the latest updated version of the white paper be made available to the target market.

Meanwhile, the new guidelines required comprehensive knowledge in the security token project as qualification for advisors. It also mandated the submission of the operations manual and know-your-customer/antimoney laundering law procedures, disaster recovery plan and risks and security protocols during the registration proper phase.