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Fair dealing and initial coin offers

Page last updated: 21 Jun 2019

What are fair dealing requirements

The fair dealing requirements in Part 2 of the Financial Markets Conduct Act 2013 (FMC Act) are broad principles that prohibit misleading or deceptive conduct, false or misleading representations and unsubstantiated representations.

Do fair dealing requirements apply to initial coin offers

If your ICO is providing a financial product or financial service, all promotional material – including your white paper, website and on social media posts – must comply with the fair dealing provisions in Part 2 of the FMC Act. The provisions prohibit you from engaging in misleading conduct and making false, deceptive or unsubstantiated statements about the financial product or service, irrespective of the type of investor you are offering to, or where they are located.

Even if your ICO is 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. This prohibits misleading and deceptive conduct, and applies to the trading of assets, commodities and other goods and services.

The Commerce Commission is responsible for ensuring you comply with this Act.

Other general consumer protection laws also apply to ICOs, including laws preventing fraudulent and other criminal conduct – like obtaining money by deception.

How to comply with fair dealing requirements

To comply with the fair dealing requirements, all promotional material associated with your ICO – including your whitepaper, website, and any social media, must follow these principles

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Any statements made about the ICO need to be accurate and able to be substantiated.

For example, any statements about growth projections and the expected future value of a business should be based on reasonable assumptions, and able to be verified. We may ask you to provide evidence of this and would expect the material to be provided immediately on request.

Be careful to balance risk and reward.

 Messages about returns and risks must be balanced. Higher-risk ICOs are likely to require more prominent and detailed warnings. 

State any assumptions clearly.

Assumptions should be reasonable – providing links to further information where appropriate.

Don’t overstate or mis-state your ICO’s current features.

For example, you must be able to verify any statements about the history of your ICO and your successes to date. Don’t claim to have endorsements, business partners or an existing customer base unless you can provide formal evidence of this.

Be clear which features of your ICO are aspirational or still in progress.

If a feature or benefit of your ICO is yet to be achieved, or is conditional on assumptions being met, this must be clearly stated. 

Do not omit or ‘cherry pick’ material information.

This creates a skewed impression of the ICO offering. Don’t bury important messages in the fine print.

If the overall impression of the promotional material is misleading, it will be in breach of the fair dealing requirements.

Our intervention powers

We have a wide range of powers to address breaches of the fair dealing requirements. These powers allow us to issue orders requiring ICO issuers in New Zealand to comply with the law, including amending or taking down non-compliant promotional material. We may publish these orders.

A breach of the fair dealing requirements is also a civil liability offence with a potential pecuniary penalty. ICO issuers can also be ordered to pay compensation to people who have suffered a loss as a consequence of a breach of the fair dealing requirements.

Want to offer an ICO? Talk to us early

We encourage you and your legal advisers to speak to us as early as possible to discuss the offer.

We can help you determine whether the ICO involves a financial product or financial service, and whether you meet the fair dealing requirements. We expect you to refrain from seeking to raise funds while discussions with us are ongoing.