The Securities and Exchange Commission (SEC) has issued regulations governing digital token offering service providers (ICO portals), prohibiting them from acting as an ICO portal for digital token issuers that have conflicts of interest.
At a meeting in June 2022, the SEC approved the principle of revising the regulations for ICO portals and related digital token offerings to make supervision more appropriate and provide standards comparable to those of financial advisors in case there were conflicts of interest.
The SEC opened a hearing for opinions on the principles during June and July 2022, and another during December and January 2023 regarding the draft announcement, with the majority of commenters agreeing with the revised criteria.
The regulator issued a notice to set guidelines for regulating ICO portals and related digital token offerings.
Effective as of Tuesday, ICO portals cannot offer tokens from digital token issuers when there is a conflict of interest, the regulator said in a statement on Wednesday.
An example of a conflict of interest would be if an ICO portal and a token issuer held shares in each other's enterprises, or if a director, executive or employee of an ICO portal that screens digital tokens that are to be offered are on the board of directors of the digital token issuer.
Some conflicts of interest may lead to a lack of independence in performing relevant duties, said the SEC.
An ICO portal could assign another party to perform the related tasks or outsource tasks related to the sale of digital tokens, such as contacting and providing services to customers, as well as support for digital token offerings and subscriptions.
The main tasks of ICO portal services, namely screening digital token offering projects, would be prohibited, said the regulator.
ICO portals must establish policies, measures and methods for assigning outsourced work to follow and supervise service provider compliance with relevant regulations. They must also provide details and a summary report of the outsourcing to the SEC.
In addition, regulations related to the supervision of digital token offerings have been revised, such as monitoring of the operations of ICO portals after they have been approved.
ICO portals must now notify the SEC if there are any changes to their qualifications or functions. This includes a revision to the requirements for public announcements of digital token offerings, which must be clearer and include all relevant and required information.
The announcement of the criteria was published in the Royal Gazette.
ICO portals that were awarded a digital token sales contract with a digital token issuer before the effective date of the announcement can continue to perform their duties as bound, according to the SEC.