Byte Power is facing another problem getting its long-delayed cryptocurrency exchange and digital token up and running as it grapples with the corporate regulator’s newly stringent rules.
The corporate regulator believes Byte’s tokens could be a regulated managed investment scheme.
Byte denies this.
Byte is selling Byte Power X Loyalty Tokens for its loyalty program to raise money. It says the benefit of these will be a 40 per cent discount on commissions for users of their crypto exchange.
But corporate regulator ASIC is standing in the way after clarifying its stance on what kinds of crypto offers do and do not constitute a financial product.
The regulator said an Initial Coin Offer (ICO) — a process like an IPO but for cryptocurrency — could be a managed investment scheme if:
- people contribute money or assets (such as digital currency) to obtain an interest in the scheme (‘interests’ in a scheme are generally a type of ‘financial product’ and are regulated by the Corporations Act)
- any of the contributions are pooled or used in a common enterprise to produce financial benefits or interests in property, and
- the contributors do not have day-to-day control over the operation of the scheme but, at times, may have voting rights or similar rights.
“If the value of the digital tokens acquired is affected by the pooling of funds from contributors or use of those funds under the arrangement, then the ICO is likely to fall within the requirements relating to managed investment schemes,” the guidance note said.
“This is often the case if what is offered through the ICO has the attributes of an investment.”
ICO issuers in Australia have so far been careful to ensure they pitch the arrangement so it doesn’t fall into ASIC’s purview, allowing them to operate in a grey, almost-entirely unregulated space.
Crypto challenges
Byte (ASX:BPG) has also been grappling with a range of challenges since trying to get into the crypto space.
It was supposed to have a crypto exchange ready for testing by the end of 2017, but a series of misfortunes from the loss of a highly ambitious advisory role, to the alleged theft of a large number of tokens by its original website developer.
Finally in February the ASX referred the company to the corporate regulator for investigation for failing to adequately respond to queries.
After being quizzed by the ASX, Byte said in September it had a legal opinion that the tokens wouldn’t be a financial product, but ASIC has since disagreed.
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If the tokens are found to be a managed investment scheme, as ASIC currently suggests, Byte will have to get an Australian Financial Services licence for both the tokens and the exchange.
They have already sold 15.6m tokens, making $936,958, and Byte has suspended sales in Australia while the issue is unresolved.
Byte originally said it could make $12m from the sale of just 25 per cent of tokens on offer.
Byte shares were flat at 0.9c on Thursday morning.