Cryptoassets, also known as virtual assets, cryptocurrencies, digital coins or tokens, are available online, for example via exchanges, initial coin offers (ICOs) and token events.
This page provides information about your obligations if you provide a ‘financial service’ related to cryptoassets in New Zealand. Applicable laws include the Financial Markets Conduct Act 2013 (FMC Act), the Anti-Money Laundering and Countering Financing of Terrorism Act 2013 (AML/CFT Act), and the Financial Service Providers (Registration and Dispute Resolution) Act 2008.
Key activities considered ‘financial services’ include exchanges, wallets, deposits, broking and ICOs. If these activities involve cryptoassets that are classed as ‘financial products’ under the FMC Act, additional obligations will apply.
Given the bespoke nature of cryptoassets, we encourage you to seek legal advice about your obligations early if you are considering offering cryptoassets or cryptoasset related financial services. We are happy to speak to you and your advisers if you have specific queries about your obligations.
For more information about the FMA’s approach to innovation and how we can help, see our How we Regulate Innovation page.
Exchanges
Exchanges issuing their own cryptoassets to facilitate trading fall within the financial service category of ‘issuing and managing means of payment’.
Exchanges allowing cryptoasset trading fall within the financial service category of ‘operating a value transfer service’.
If you allow trading of cryptoassets that are financial products under the FMC Act you need to consider whether you are operating a financial product market. If so, you may need to be licensed.
Further information on when a cryptoasset may be a financial product is available on our Initial Coin Offers page. Before you start trading a cryptoasset, we encourage you to seek legal advice to help you determine whether that cryptoasset is a financial product. We are happy to speak to you and your advisers if you have specific queries.
Wallets
If you’re a wallet provider storing cryptoassets or money on behalf of others, and you facilitate exchanges between cryptoassets or between money and cryptoassets, your services fall within the category of ‘operating a value transfer service’.
If you hold money for depositors you may be offering debt securities. However, if depositor funds are held in trust, your wallets may not be debt securities. Debt securities are financial products. They have additional regulatory requirements under the FMC Act.
Broking
If you arrange cryptoasset transactions, you are providing the financial service of ‘operating a value transfer service’. If you are providing safe-keeping or administration services in relation to cryptoassets, you are providing the financial service of ‘keeping, investing, administering, or managing money, securities, or investment portfolios on behalf of other persons’.
If you provide transaction services in relation to cryptoassets that are financial products you may have obligations as a broker under the Financial Advisers Act 2008.
Providing investment opportunities in cryptoassets
If you are providing investment opportunities in cryptoassets (e.g. via a derivatives issuer providing cryptoasset options or via a managed investment scheme investing in cryptoassets), you will be regulated in the same way as if you were providing investment opportunities in traditional assets or financial products. If you intend to offer this type of product, we encourage you to seek legal advice early. We are happy to speak to you and your advisers if you have specific queries.
ICOs and financial services
We encourage you to seek legal advice about your obligations if you intend to offer an ICO. Each ICO must be looked at on an individual basis to determine whether it involves offering a financial service and/or financial product.
If your ICO is offering a cryptoasset that is a ‘financial product’ under the FMC Act, additional obligations will apply. For more information, see [<insert link> Initial Coin Offers]. ICOs may involve the financial service of ‘operating a value transfer service’. ICOs may also involve the financial service of ‘issuing and managing a means of payment’.
Fair Dealing and cryptoasset related financial services
If you provide a ‘financial service’ related to cryptoassets, you must comply with the fair dealing provisions in Part 2 of the FMC Act. These are broad principles that prohibit you from engaging in misleading conduct or making false, deceptive or unsubstantiated statements.
If the overall impression on your website, social media sites and promotional material is misleading, it will be in breach of the fair dealing requirements. You must ensure messaging about risks and rewards of buying or trading cryptoassets is balanced. Do not cherry-pick or omit key information, or bury key messages about risk in the fine print.
If you are based in New Zealand, you must be registered on the Financial Service Providers Register (FSPR) and pay the applicable fees and levies, for each category of financial service you are in the business of providing. You must also belong to a dispute resolution scheme if you offer financial services to retail clients.
Cryptoassets are vulnerable to misuse by criminals to launder money and fund terrorism as they allow greater levels of anonymity and have global reach, making it easier for cross-border payments to be made, and they can be traded easily.
If you provide cryptoasset-related financial services in New Zealand in the ordinary course of your business, you will likely be captured as a ‘financial institution’ under the AML/CFT Act. Obligations under the AML/CFT Act will apply.
For more information on how the AML/CFT Act applies to cryptoasset service providers, see DIA’s guidance on virtual asset service providers or VASPs.
Who is my AML/CFT supervisor?
In most cases, the Department of Internal Affairs (DIA) will be your AML/CFT supervisor. In a very few cases, we may be your AML/CFT supervisor, depending on the services you provide.
If you intend to provide cryptoasset related financial services, you should contact DIA in the first instance at AMLCFT@dia.govt.nz.
ML/TF risks
We strongly recommend you familiarise yourself with the money laundering (ML)/ terrorist financing (TF) risks and vulnerabilities associated with cryptoassets, and incorporate this into your AML/CFT risk assessment where appropriate.
At minimum, you should read the DIA’s sector risk assessment on virtual (crypto) assets, available at pages 53-56 of the DIA’s 2019 sector risk assessment on financial institutions: Download the Financial Institutions SRA 2019 PDF.
See also the Financial Action Taskforce (FATF) guidance on cryptoasset service providers (referred to by the FATF as “VASPs” – virtual asset service providers.”
Initial coin offers (ICOs) are a form of fundraising where you receive cryptoassets (also known as virtual assets, cryptocurrencies, digital coins or tokens) that carry certain rights, such as providing access to a new product or service, or an interest in an underlying asset or project.)
How an ICO is regulated in New Zealand depends on whether:
ICOs must comply with fair dealing requirements under New Zealand law. These requirements prohibit you from engaging in misleading conduct or making deceptive statements in your white paper, website, or other promotional material associated with your ICO (such as on social media). For more information, see our Fair dealing and initial coin offers page.
The Financial Markets Conduct Act 2013 (FMC Act) sets out four types of financial products - debt securities; equity securities; managed investment products and derivatives.
A cryptoasset is a debt security if investors have a right to be repaid money or paid interest on money lent to, deposited with, or owed by a person, company, or unincorporated entity making a cryptoasset offer. For example, a cryptoasset linked to the value of a dollar or commodity could be a debt security if:
To make a regulated offer of debt securities, you must:
What are asset backed tokens?
Asset backed tokens are a type of cryptoasset that typically give investors an ownership right to an underlying tangible or intangible asset, like gold or real estate, where the distributed ledger is used as a record of ownership. Investors usually have the right to redeem the token in exchange for the underlying asset – exchanging one token for one gram of gold for example.
Are cryptoassets backed by assets financial products?
While each ICO must be looked at on an individual basis, cryptoassets that give investors a right to redeem the token in exchange for the asset are not considered debt securities (unless the asset is cash). This is because the cryptoasset does not give an investor the right to be repaid ‘money’.
Do asset backed token ICOs involve financial services?
When you offer asset backed tokens through an ICO, you are providing the financial service of ‘operating a value transfer service’. You may also be providing the financial service of ‘issuing and managing a means of payment’ – where tokens can be used to obtain products or services otherwise acquired using legal tender (such as NZ dollars). These services are regulated by us.
How do I comply?
If your asset backed token ICO is providing a financial service, you must comply with the fair dealing provisions in Part 2 of the FMC Act. These provisions prohibit you from making misleading, deceptive or unsubstantiated statements, for example about the extent to which the tokens are backed by the asset. So if you state in a white paper that an asset backed token is ‘100% gold backed’ there must be enough gold available (at an official mint, for example) to allow all investors to redeem their tokens.
For more information, see our guidance on ICOs and financial services, and fair dealing and ICOs.
Are stablecoins financial products?
Stablecoins are cryptoassets that typically have a value directly linked or “pegged” to the value of a fiat currency or a basket of assets. Whether a stablecoin is a financial product will differ on a case-by-case basis, as they vary greatly in their structure and arrangement. However, if you are providing financial services in relation to stablecoins, you will have obligations under New Zealand law – see “Cryptoassets and financial services” for information on how to comply.
If you intend to offer stablecoins in New Zealand via an ICO or via an online exchange, we encourage you to contact us at questions@fma.govt.nz.
A cryptoasset is an equity security if investors buy, or have the option to buy, for example, a share in a New Zealand incorporated company or a body corporate incorporated outside New Zealand. A cryptoasset that provides an option to buy a share is an offer of both the cryptoasset and the equity share.
If you make a regulated offer of equity securities, you must:
Investor interests and rights will be set out in the company’s constitution. This means a trust deed is not required.
The manager of a managed investment scheme must be licensed by us in order to make a regulated offer to retail investors in New Zealand. The manager is the person, company, or unincorporated entity issuing the cryptoassets. When you make a regulated offer of managed investment products, you must also:
What are utility tokens?
Utility tokens (sometimes called “application tokens”) typically give investors the right to access and/or use a company’s platform, product or service. They often grant holders rights similar to pre-payment vouchers.
Are utility tokens financial products?
While each ICO must be looked at on an individual basis, utility tokens are not considered managed investment products simply because they can be traded on a cryptoasset exchange or other secondary market. This is because any profits an investor receives by trading those utility tokens on a cryptoasset exchange are not ‘rights to receive a financial benefit’ under a managed investment scheme.
Do utility token ICOs involve financial services?
When you offer utility tokens through an ICO, or provide financial services in relation to utility tokens, you may be providing the financial service of ‘operating a value transfer service’, depending on the specific features of your offering. We encourage you to seek legal advice if you are unsure of your obligations.
A cryptoasset may be a derivative if, under the terms of the cryptoasset, the issuer or holder may be required to pay an amount or provide something else in the future, and the amount to be paid or the value of the cryptoasset is derived from the value or amount of something else, such as a commodity or asset.
The issuer (person, company, or unincorporated entity) of the cryptoassets must also be licensed by us in order to make offers to retail investors in New Zealand.
If you make a regulated offer of derivatives, you must:
ICOs that offer cryptoassets that are financial products to wholesale investors, or to investors based outside New Zealand, will not be subject to full licensing, governance and disclosure requirements under the FMC Act. However, fair dealing requirements under Part 2 of the FMC Act still apply.
While each ICO must be looked at on an individual basis, most ICOs involve the financial service of ‘operating a value transfer service’. ICOs may also involve the financial service of ‘issuing and managing a means of payment’ If your ICO provides financial services you must:
If you provide cryptoasset-related financial services in New Zealand in the ordinary course of your business, you will likely be captured as a ‘financial institution’ under the AML/CFT Act. Obligations under the AML/CFT Act will apply.
For more information on how the AML/CFT Act applies to cryptoasset service providers, see DIA’s guidance on virtual asset service providers or VASPs.
For detailed information on how the AML/CFT Act applies to cryptoasset service providers, and on the risks of money laundering and terrorist financing associated with the cryptoasset sector, see DIA’s guidance on virtual asset service providers or VASPs, at [insert link].
See also The Financial Action Taskforce (FATF) guidance on cryptoassets (virtual assets)
Who is my AML/CFT supervisor?
In most cases, the Department of Internal Affairs (DIA) will be your AML/CFT supervisor. In a very few cases, we may be your AML/CFT supervisor, depending on the services you provide.
If you intend to provide cryptoasset related financial services, you should contact DIA in the first instance at AMLCFT@dia.govt.nz.
ML/TF risks
We strongly recommend you familiarise yourself with the money laundering (ML)/ terrorist financing (TF) risks and vulnerabilities associated with cryptoassets, and incorporate this into your AML/CFT risk assessment where appropriate.
At minimum, you should read the DIA’s sector risk assessment on virtual (crypto) assets, available at pages 53-56 of the DIA’s 2019 sector risk assessment on financial institutions: Download the Financial Institutions SRA 2019 PDF.
See also the Financial Action Taskforce (FATF) guidance on cryptoasset service providers (referred to by the FATF as “VASPs” – virtual asset service providers.”
Even if you are not providing a financial service or financial product, ‘fair dealing’ requirements still apply to white papers and other communications about your ICO under the Fair Trading Act 1986. See our fair dealing and ICOs guidance for more information.
We can designate cryptoassets to be a particular financial product if, based on their economic substance, this is necessary to promote fair and efficient financial markets in New Zealand or any of the other purposes of the FMC Act. For example, a cryptoasset giving investors voting rights and an interest in the company and its profits could be designated an equity security. A designation could be accompanied by an exemption to modify FMC Act disclosure and governance requirements.
Designations are only made after consultation with industry and do not apply retrospectively. This means that only ICOs that happen after a relevant designation is in place are regulated by the FMA.
No, crowdfunding in the form of an ICO is not the same as crowdfunding covered by the FMC Act.
We license crowdfunding platforms to provide an intermediary service via a facility, such as a website, where companies make offers of equity securities to retail investors.
Equity crowdfunding under the FMC Act enables companies to raise up to $2 million in any 12-month period, without registering a PDS.
Given the bespoke nature of cryptoassets and ICOs, we encourage you to seek legal advice about your obligations early if you are considering making an offer. We are happy to speak to you and your advisers if you have specific queries about your obligations.
We can grant exemptions to promote the FMC Act’s objectives. One objective is to promote innovation and flexibility in our financial markets. We can also, if appropriate, grant exemptions to ensure FMC Act requirements are fit for purpose for ICOs. This may include modifying PDS or governance requirements.
We will continue to monitor and consider what additional regulatory support and requirements may be appropriate for the offer of these products and services.
For more information about the FMA’s approach to innovation and how we can help, see our How we regulate innovation page.
Get in touch at: questions@fma.govt.nz